Do IPOs Have An Impact On The Other Stocks?

Initial public offering is a very important step to transform from the previous owned by closely held shares into the public ownership.And in the meanwhile, IPO provides another financing way for the companies to raise money from the institutional and individual investors for expansions in the production operations. On the other hand, the capital market accepting more and more IPOs not only shows its own unique features but also marks the development and improvement. However, this view is not universally accepted, some investors believe that IPO will have a negative impact on the market especially when high-quality large company issues stocks. Therefore, it's urgent and important to correctly understand risks and opportunities the IPO brings. This article takes empirical analysis to study whether the IPO will impact the prices of other stocks and market index so as to give some advices for the investors in their investment decisions and regulators in their making policies.In the first part, this article takes the day from issuing notice to the 1st day prior of listing as a time study window, using event study method to do a research of whether 699 IPOs since 2000 to 2008 affect the stocks that belong to the same plate in Shanghai and Shenzhen A-share market. The results show that the whole IPOs have a crowding-out effect, but the monopoly industries show the opposite effect. In order to further study this phenomenon, the article forms a model selecting the cumulative abnormal returns as the dependent variable, selecting IPO companies issued earnings, market environment and other factors as explanatory variables. The results shows that high-quality company issues under loose monetary policy will help producing the stimulating effect to the same industry sector, while the article finds that larger IPO also has the positive effect; On the contrary, the company issues in a bull market produces a negative effect to the same industry sector, and the article gives detailed explanations for this phenomenon.In the second part, top five high-quality large-scale companies are chosen as the research sample to study the effect on the broader market as well as the individual stocks through the different grouping during above periond. The empirical results show that index takes a rising trend thus correcting the wrong view that IPO of large company is a bad news to the market. Samples on the market as a whole in accordance with the level of stock prices and fundamental data group study shows that:the index may fall around the day of release announcement and listing announcement; In the mean while, the events that IPO of high-quality large-scale companies have a great impact on market index while impacts on companies show differences, we have to consider other factors such as expectations for the companies.Finally, a number of advice are given to investors according to the results, hoping they can correctly understand the opportunities and risks IPO brings; In the mean while, this article also makes some policy recommendations to regulators, especially advising them to have a deep consideration of some factors including market environment and scale when issuing high-quality large company so as to ensure stable and healthy development of capital markets.