A Study On Underpricing In Small And Medium Enterprise Board And ChiNext

We study IPO underpricing in Small and Medium Enterprise Board and ChiNext with signaling theory. All the IPOs studied in this paper are priced by bookbuilding, which is a new IPO pricing mechanism adopted by China Securities Regulatory Commission (CSRC) on January 1,2005. We first compare the explanatory power of signaling theory regarding IPO underpricing between Small and Medium Enterprise Board and ChiNext and find that signaling theory can explain IPO underpricing in ChiNext, but fails to explain IPO underpricing in Small and Medium Enterprise Board. We also find that entrepreneurial team's retained ownership can help reduce IPO underpricing.We further explore any moderating influences among signaling variables, and find that the signaling variable entrepreneurial team's retained ownership has a significant moderating impact on the relationship between the number of risk factors and IPO underpricing.