Empirical Study On IPO's Abnormal Initial Return Of The Underwriter's Impact In China

IPO's abnormal initial return (AIR) has been an anomaly existing in almost all stock markets. In the past sixty years, researchers have provided two explanations for this new issues puzzle. The one is underpricing and the other is overvaluation. This paper analyezes AIR in China from the Underwriter's angles, researching the Underwriters'impact of AIR, such as the underwriter reputation, the behavior of offering and allocation and the behavior of price supporting.Using a sample of 329 A-share IPOs during 2001-2006, we use means analysis and a general linear regression model to analyse these factors above. The results show that as the marketing of financial regulations accelerates, underwriters play an more important role of controlling underpricing in primary market.On the sponsor system, underwriters pay more attention on the IPO company's quality and on the duty of sponsor and guide. So AIR descends notably on the sponsor system. More IPO companies begin to notice underwriter reputation . The underwriter with better reputation can make higher IPO price/PE than it with normal reputation and lower offering cost and lower AIR. As the marketing of IPO, AIR will descend notably on the sponsor system or by bookbuilding. Institutions can be involved in the stock pricing and allocation by bookbuilding and make AIR descending. Morever, in the period without PE limit,increase of lottery can make offering PE raising up, but no effect of AIR.During the research of underwriter's price supporting , we find out that there are both the supporting and underpricing existent in Chinese securities. On the secondary market, underwriters do price support on the first or second day of IPOs and draw back almost on the third week. We can use a alternative variable"Power"to analyse the relationship between price supporting and AIR. The results shows that, according to Behavior Finance, behavior of nosie trader in IPO market could raise up the price of the first day at a large range, and make a high overvaluation.The conclusion is that the efficiency and accuracy of IPO pricing could be improved duiring the marketing of financial regulation in primary market and AIR will more reasonable during the time.