An Empirical Analysis Of IPO Underpricing In Chinese Stock Market

A large amount of empirical research both at home and abroad have shown that IPOs have been underpriced in the security markets of developed countries and developing countries. The IPO underpricing rate was severe since the establishment of Chinese stock market. The empirical analysis of IPO in this paper is based on the theory of corporate finance, using the data of 450 IPOs in Shanghai and Shenzhen primary markets form January 2000 to December 2004, with an emphasis of ownership restriction and the trades in the secondary markets. We find that EPO underpricing is negatively related to the largest share, the size of the IPO, time elapsed between the announcement of an IPO and the first-day market trading, price/earning ratio and so on, positively related to turnover ratio of the first-day market trading; both the year and the method in which the new stock listed have significant impact on the IPO underpricing. At last, we made suggestions to bring down the rate of IPO underpricing, accelerate the reform in the primary market, and maintain the arbitrary system between the first and secondary market.