An Empirical Study On The IPO Underpricing In Chinese Stock Market

The initial public offering is an important step that a private firm becomes public. The pricng is the critical part of an IPO. Reasonable price will affect not only the interest of issuer, investor and underwriter, but also the resource allocation efficiency of the capital market.The underpricing of new stocks is a piece of phenomenon that exists generally. The degree of underpricing in the primary market of our country is higher than in stock markets of other countries. Too high underpricing has caused mismatch of risk and earnings between primary and secondary market in our country, concentration of a large amount of fund in primary market, and has influenced the sound development of the capital market. Therefore, it is necessary for us to analyze the IPO underpricing phenomenon in Chinese stock market, to find the main factors influencing the IPO underpricing and the main reason which causes IPO to be underpriced, then to put forward the corresponding suggestions to reduce the degree of IPO underpricing.This article has done such work for the empirical study on the IPO underpricing in our stock market. (1) To introduce the research background of this text and researching meaning, the domestic and foreign scholar's study on IPO underpricing. (2) To analyze the IPO valuing model and various market subjects'effect on underpricing, combined with the characters of Chinese stock market. The paper chooses eighteen variables as the main factors that influence the IPO underpricing in Chinese stock market. (3) To study empirically the initial return rate of 166 new stocks issued from January 2003 to December 2005. On the basis of using factors analysis on the data, applies stepwise regression analysis to determinate factors affecting IPO underpricing and establishes the regression equation. The results show that the issue way significantly affects on initial return rate of new stocks, and the next is changing rate. The influence of asset quality is minor. The variables, including scale, underwriter and industry do not enter into the regression equation. (4) To make some suggestions about the development of our stock market according to the research result.