A Study On IPO Valuation And Under-pricing Of GEM In China

In the progress of China's reform and opening up, SMEs have played an indispensable role in China's economy. In order to solve the financing issues of SMEs, the GEM finally emerged after a decade's preparation. However, providing that our economic society is in transition period, our capital market system compared with the west is still far from the perfect, reasonable valuation of listed companies can hardly be reached, and heavy IPO under-pricing phenomenon maintains. With regard to China's new-born GEM, these issues have been more obvious. Therefore, from the perspective of both theory and practice, research on the GEM companies valuation and IPO under-pricing phenomenon will be significant for improving China's GEM system, promoting the efficiency of SMEs'financing and modifying the operating environment of China's capital market.This research mainly includes the following aspects: First, by analyzing the related theories of company's valuation and IPO under-pricing, the paper tentatively sets up an analytical framework of China's GEM companies valuation and IPO under-pricing; Second, on account of the analysis of China's GEM features, positioning and the characteristics of real options, the paper builds a IPO pricing model in view of real option theory with pertinent illustrations. Third, combining qualitative analysis and quantitative analysis, it explores on the factors of IPO under-pricing in China's GEM which can be summed up with three points.①According to the characteristics of GEM companies, the use of option pricing method can make better quantitative analysis of adaptability of business management and flexibility of business strategies,and to some extent can deal with the shortage of traditional valuation methods for GEM companies;②Through distinguishing investment management and reputation mechanism, venture capitalists can help the financing of the enterprise in the early stages of its life cycle by selling shares on the market.③The empirical tests on IPO under-pricing factors of Chinese GEM indicates that in China small and medium investors act as the principle investment party who can hardly well measure GEM companies valuation on speculative purpose. Moreover, on account of the immaturity of China's GEM and its market identity of innovative companies, it poses great investment risk and needs to be further improved and standardized.