Empirical Research On IPO Underpricing In China's Growth Enterprises Market

China's growth enterprises market (GEM) has been lunched for over one year, and has become an important part of China's capital market. However, the GEM has problems of high IPO P/E ratio and high IPO underpricing. Whether the IPO pricing process of GEM is efficient is concerned by China's academic circle.We use methods from finance, econometrics and management theories to research empirically on IPO underpricing in China's GEM. We are trying to find out reasons why the high IPO P/E ratio and high IPO underpricing occur following two clues which are "What are the most significant influencing factor of IPO underpricing" and "Comparison of the efficiency of IPO pricing between GEM and second board market ".First, we review the development history of China's GEM and point out the two main problems which are high IPO P/E ratio and high IPO underpricing. Then we argues that the unbalance between supply and demand both in primary market and secondary market may cause these problems. We then analysis the effect of market oriented reform of IPO pricing and point out that the unbalance is caused by incomplete of the reform.In the part of empirical research, we analyze the significant influencing factors of IPO underpricing, using the method of stepwise regression. The conclusion is that the most significant influencing factor is the first day turnover ratio which indicates that the excess demand in secondary market cause the high IPO underpricing. Then we use the method of relative efficiency comparison and find that the IPO pricing in GEM is less efficiency than what in second board market which indicates that the high IPO P/E ratio in GEM is unreasonable.In the end, we put forward some advice on propelling the market oriented reform of IPO pricing that China should change from IPO approval system to the registration system, improve public information disclosure system and assume more responsibilities to sponsors.