Research On Chinese Securities Market Institutions And IPO Under-pricing

IPO, namely initial public offering, is crucial for company to go public and raise equity money, improve capital structure, promote its reputation, disperse risk, and make venture capital exit. Whether IPO succeed is important for company's development, and the critical factor of company's success is IPO pricing. Generally speaking, company can raise more money from higher IPO price but assume more risk of issuing unsuccessfully, and raise less money from lower IPO price but assume more capital cost.However, how to make certain whether IPO is under-priced? I argue that IPO is under-priced when the issue price is lower than the close price of the first day. IPO under-pricing can be moderate, whereby investors can get proper reward. IPO under-pricing is much higher when issue time is close to the first day of listing, which violates efficient market hypothesis. IPO under-pricing exists in all securities markets, but the extent of IPO under-pricing is different in various countries. IPO under-pricing is higher in China than in most of the foreign countries. There are many reasons for IPO under-pricing, which vary with country. IPO under-pricing has been explained by scholars from all kinds of perspectives. Nevertheless, there are no consistent and uniform conclusions. Thus, it is imperative to examine the factors which cause high IPO under-pricing in China and give suggestions to help policy-decision.In this article, I have examined the main causes of IPO under-pricing in China. My analysis focuses on whether primary market issuing system, which includes regulating mode, pricing method, and issuing way, secondary market trade mechanism, and spilt-shares structure situation have significant effect to IPO under-pricing. I have chosen 687 companies issuing A shares from Chinese securities market. Both the issuing time and listing time are during January 1st, 1999 and September 31st, 2007. Statistics results show that after all shares circulates, IPO under-pricing rate rises, and that in spilt-shares structure time, IPO under-pricing rate in approval system is lower than that in licensing system, and that in the total sampling time, IPO under-pricing rate in issuing way such as bookbuilding from both on-line and not-on-line way is lower. In regression, I have testified that IPO under-pricing rate rises when turnover rate on the first day rises, and that IPO under-pricing rate is higher when issue time is closer to the first day.In the end, I have given some advices based on my practical examination.