Research On Underwriters’ Behavior In Chinese IPO Market

In China, stock market has been created 20 years. For these twenty years, with reforming and opening up, China’s capital market had an extraordinary development process. Chinese IPO market share issuance system has carried on the important reforms, Experienced from Administrative Examine and Approve System, Approve Channel System, to Approved Sponsor System. Methods of Setting IPO Price also changed frequently, with the progressive reforms in Stock Issuance System, Stock issuance system continues to mature, and IPO market main underwriter’behavior also gradually get specifications.In view of IPO underwriting practice, there has problems, such as few IPO guarantors less due diligence, so many underwriter’s application were denied, the soar up of the IPO prices, the issue price flops, so, there still has a far way to an efficient market.In academic research, Chinese scholars’research on A-share IPO underwriter’s started lately, The research more focused on comparative broad underwriter’s reputation, the relationship between underwriter and IPO price, the relationship between underwriter and IPO price devaluation.Thought there had so many literatures, system researches on underwriters behavior is few, and fewer can give readers a comprehensive conclusion about IPO underwriters’ behavior.Therefore, the article takes year 2001-2010 as window period to research the behaviors of IPO market main underwriters, using theoretical analysis, empirical analysis, comparative analysis and normative analysis, the article studied different perspectives on the main underwriter, and systematically summarized the behaviors of the underwriters in Chinese IPO market.Following the order of lead underwriters in IPO, through the multiple perspectives of empirical study, the author analyses the behavior of main underwriter in A-share IPO, in turn, summarizes the business choice behavior, issuing pricing behavior, psychological anchors in pricing, Gradually loosening from the early anchor point, window dress behaviors of main underwriters in IPO market, then, summing up the underwriters business style. brief content as follows. Through statistical comparisons of registered address between main underwriters and issuers, the author found the main underwriters does not exist fixed business region, so, the pairing of underwriters and issuers should not limited by region.It shows the main underwriters have prominent area in industries; selections of clientele are clearly influenced by its profession. The underwriter’s local business accomplishment amounts are vary by region, in the rich IPO resources region, the underwriters underwritered more local issuing. And there is a clear positive relation between their registered capital and volume of business.Using Principal Component Analysis, the article compares issuing price and market price of IPO company, the result shows the explanatory ability of issuing price is stranger than market price in reflecting of the issuer’operating information which based on 34 financial index. After yearly observation of explanatory ability, the author summarizes phenomena related different industries, different equity structure, different market condition.In empirical test we found the rich experience underwriters’IPO pricing reflects the company’s financial information less than those of lack of experience underwriters.In order to make the phenomenon clear, the paper analysis the regression residuals and explained:during pricing process, different experience underwriters endowed different weights to composed parts. Relatively speaking, experienced underwriters’ IPO prices are more comprehensive than inexperienced underwriters.Chapter 6 conducting an empirical summary from behavioral finance view of IPO market, the paper find main underwriters has the effect of psychological anchor in issuance pricing, it also shows phenomena of gradually loosening from the early anchor point. In market-oriented pricing IPO process, main underwriters still has the behavior of price anchoring. Obviously they rely on PE ratio and PA ratio, but in different industries the anchoring degree is different.From the time series, there are common behaviors in the main underwriters’ pricing processes, their pricing options do have anchoring effect. But the anchor points have dynamic characteristics.Then, the author tests anchoring effect in IPO progress on recent five years by listed companies’IPO pricing data, finds that there do have significantly anchoring effect in Small Plate and Growth Enterprises Market, this research also shows the Small Plate’s IPO pricing anchor is more closer on PE than on PB; on the contrary, GEM’s anchoring target is tightly on PB.The paper also shows the behavior of loosing anchor point in underwrite isn’t deny of the anchor effect, instead, it is a deeper anchor performance.The paper put light on double-edged sword effect of IPO market anchor. On the one hand, main underwriters’pricing anchoring behavior in IPO market conducive to the stability of the IPO price, it can keep investors in stable psychological expected, on the other hand, this kind of anchor compare with the higher in PE ratio and PA ratio, it do harm to long-term stability in the market, they are destruction factors to market efficiency. Using hindsight measures, The article also reasoning in three conditions that main underwriters and listed companies may have window dressed when they were in IPO process.This article finds influenced by main underwriters’window dressing, those whose first closing price were under issue price would overestimate about 100% by investors in the secondary market; those whose Performance decline in short terms would overestimate a level of 27.8% in the secondary market; those who announced investment direction changes would overestimate level for 44.7% in the secondary market; the issuers which first closing price were under issue price and Performance decline in short terms would overestimate a level about 52.4%; the issuers which have all the three characters would overestimate a level about 51.9%.The study had proved the reforms to the rule give a correct rectify to secondary market investors when they make evaluation to an IPO company. During years of practices the evaluation influence from the issuer and main underwriter to investors getting weak. Obviously, gradually effective market system produced a positive role.The empirical test found that the contracts between main underwriters and issuer almost in the same mode in recent 10 years. This would lay underwriters in a larger issuance risk, potential risks also do harm to IPO market. When there are new issues launch on the market, the underwriters didn’t consider the environment of the capital market.The change in IPO rule influence main underwriter little, the volume of underwriter’s capital and its business scale are symmetrical, big underwriter’s business style has greatly influenced the whole underwriters’business style. Different underwriters’price devaluation in IPO did not show difference in empirical test in study period.The innovations in this paper are in three point:first, from different angles the author summarized IPO market underwriters business behavior characteristics, the main underwriters’business style has also refined. Second, from the perspective of regression residual, the paper analyzed the relation between issuance price and character of main underwriters. Third, analysis the psychological anchor effect of main underwriter in IPO pricing, the phoneme of loosen from anchor point was also discussed.Through the writing, I found there existed some shortages, For limitations in data collection ability, I failed to research main underwriters’behavior thoroughly in some areas which I interested in. Limited to personal qualification, I found behaviors of main underwriters was not fully understand. The paper was broad to spare, and lack of depth.