Empirical Research On Chinese IPO Underpricing: With Respect To Systems, Market Conditions And Firms' Registering Places

As the primary market, initial public offering market is the fisrt "qulity screen" for the stock market, directly affecting the average quality and future development of stock market. However, in less than twenty years of existance, and after several reforms, a more suitable set of offering and listing systems are yet to built, which can be infered from the persistent high IPO fisrt day returns and the continuous research on it. Earlier studies by domestic shcolars are mainly based on foreign theories, then latter, more attentions are paid to systematic issues. While foreign shcolars analyzing our country' IPO market research on it from broader views, such as political background of managers, "financial packaging" and so on.This paper analyzes the high IPO first day return from two aspects:Firstly, with respect to offering and listing systems, studying the effect of share-split reform and "Baojian" (introduce and guarentee) system on initial returns. For one thing, with all the stocks being tradable after share-split reform, the share holding structure will be more disperse, which can reduce the chances of infringing small share holders' rights by larger ones. This then directly reduces the offering and listing risks, which may lead to less initial returns. For another, changing to less strict but efficient approving system for company listing leaves more room for market factors playing their role, and makes the offering prices more reasonable. What's more, after the enforcement of "Baojian" system, rent seeking behaviors can be effectively restrained, which also would lead to the reduction of underpricing level. Secondly, concerning effect of information asymmetry on first-day return, this paper studies on the part of IPO firms'registering place. This includes regional economical development, distance to financial centre, firms'bribry behavior and property protect, which are proxied by GDP/capita, road miles, entertainment and travel costs(ETC) and property protect index respectively.Through theory deducing, statistics analyzing and regression analyzing, this paper finds that (1)no immediate effect of share-split reforms on initial return has been found; (2) "Baojian" system has effectively reduced the underpricing;(3) firms registered in lower-GDP/capita region, far away from any of the two financial centers, have higher entertianment and travel costs or with poor property protection would have higher first-day returns. Besides, this paper confirms many results obtained by other researches, such as great effect of market condition on the listing day on initial returns, high demands(proxied by draw ratios) leading to high underpricing, state legal person holding and fundings holding have negative relationship with underpricing.