The Analysis Of The Underpricing Of Initial Public Offerings By The Game Theory

It can be learned from the related researches that economists intensively focus on the study of the underpricing of the initial public offerings (IPO), of which the information asymmetry is considered as the main cause. A series of theories based on different pivots of information economics, such as moral hazard, adverse selection and signaling, are used to explain the underpricing. With the development of behavioral finance, the studies on IPO and the underpricing of IPO are enriched greatly. The security market of China should be led and regulated by mature theories and experiences, which is based on its particular situation.This paper follows some points of incomplete information theory in explaining the phenomenon of the underpricing of IPO. Through the game theory, it manifests each player's strategy selection and final equilibrium during initial public offerings. In the process of new issues going public, four main parts are included, issuers, underwriters, investors and the government. Each of them has its objective function and game strategy, and maximizes its utility. This paper analyses the game relationship between them.In addition, on the basis of other models of information asymmetry, this paper analyses the relationship among investors, underwriters and issuers, and illustrates the main point of the cooperative game-theoretical approach in explaining underpricing of IPOs. It points out that the degree of the underpricing depends on the negotiation ability of offering firms, and the average underpricing of IPOs is not a transfer from old shareholders to new shareholders, but reflects surplus-sharing of the increasing in firm value between old and new shareholders. The assignment model implies that a justice condition is indispensable for the purpose of attaining the exclusive distribution.