A Research On The Ipo Underpricing Of Shares In The Chinese Growth Enterprise Market

This article focuses, systematically, on the IPO underpricing puzzle of the new shares in the Growth Enterprise Market of China. In Chinese Growth Enterprise Market, the average earning rate of the IPO issues on the first day is up to 57.56 percent, and the average over-earning rate is 57.25 percent, which are both far higher than those in the stock market of most of developed states and some developing countries, but less than those in Chinese Motherboard Market which results from the high P/E ratio in the Chinese GEM. Viewed from the various angles such as the offering distribution, the cross-sectional data and time series, the GEM Market new issues also show its own unique characteristics.This paper attempts to explain the underpricing puzzle by using the uncertainty model. The result suggests that the IPO underpricing rate is negative related to the firm size, IPO offering price, asset-liability ratio, the surviving years of firm and the proportion of outstanding shares, positive related to the earning rate on the issuing new shares after IPO. The conclusion made by the paper is that the over-earning rate of IPO shares on the first day can be explained by the uncertainty model in a high degree.The Paper contents several Parts:Part one, named Introduction, introduces the background of the paper which is followed by the valuation and the contribution. Then, it states the current situation of research on the topic and the contents of the paper.Part two is the survey of IPO underpricing theory. This part describes the current Schools of IPO, which are:asymmetric information theory school, system theory the school of rational behaviors.Part three is the analysis of the cause of the GEM IPO underpricing. This part introduces the Chinese IPO Growth Enterprise Market and the analysis of related behaviors.Part four is named the empirical analysis of the Chinese GEM IPO underpricing. In this part, the research object is focused on the complete IPO shares(removed the unfinished data) of the GEM since the foundation date to the 31st May,2010.The number of the data is 86 and all the data are treated by the EXCEL. This part describes the IPO shares of GEM on various angles in order to grasp its characteristics fully.Part five is the multi-variable regression analysis of Chinese GEM IPO underpricing. This part, first, selects related factors according to the theory, then put all the samples in a order, and studies the common factors from different angles to identify the underpricing level preliminary by using descriptive statistical methods. Finally, the explanatory variables are selected based on relevant factors and are studied by using the multiple regression model in order to get convincing conclusion for practical reference.Part six, conclusions, describes the main results of the paper. First, the IPO underpricing exists in the Chinese GEM market, which is much higher than that in the developed countries and most of the developing countries stock market, but is less than that in the Main Market of China. Second, China's GEM IPO underpricing comes up with their own unique characteristics viewed from the offering patches, cross-sectional data and the time series data. Third, the regression analysis shows that IPO underpricing can be explained by the uncertainty model in some degree. The result suggests that the IPO underpricing rate is negative related to the firm size, IPO offering price, asset-liability ratio, the surviving years of firm and the proportion of outstanding shares. Fourth, in order to reduce GEM IPO underpricing to the reasonable level, the paper states the following policy suggestions. One is to improve the information disclosure mechanisms by establishing the three-dimensional monitoring system. Two is to promote the health of the market to foster the rational investors. Three is to further improve the institutional offering price mechanism and try to set up "T + 0" trade system.