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Chinese Stock Issue Pricing

Posted on:2006-12-07Degree:MasterType:Thesis
Country:ChinaCandidate:S Y QinFull Text:PDF
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From 1980 to 2001, the number of companies going public in the United States exceeded one per business day. Going public has been a trend when private companies search their way of getting stronger and look forward to promising prospects. There are lots of important things in the process of the action; otherwise, what interests us most is the initial return after the day of a company's initial public offerings. When companies go public, they reward first-day investors with considerable underpricing. Underpricing has been a notable puzzle in modern finance, though there are very few convincing explanations on it, especially in China's capital market, where a shocking initial return is everywhere. In this paper, I try to explain this concept in a China's perspective, though it seems difficult to give any directly useful solutions or change our situation immediately. Differences in average initial returns are analyzed in terms of binding regulations, contractual mechanisms, asymmetric information, allowance of the shares, and the characteristics of the firms going public.In the first part of the paper, the underpricing theory of initial public offerings is interpreted by some strange phenomena in today's China. After the first day of going public, most stocks fitness a sharp rise of price at which the company sold them. Explanations of new issue underpricing are different, among which are theory on asymmetric information, theory on constitutional restrains and theory on corporate governance. As it turns to China, attempts to transfer a resolve have been conducted by some useful empirical evidences examined since the beginning of Shanghai Stock Exchange's coming into reality.Secondly, the theory of issue pricing is discussed. The efficient-market hypothesis witnesses that any company being listed should be at the price deserving the inner value of its own, which is quite different to the situation we face. The ways of pricing have changed simultaneously with the development of capitalmarkets, and the pricing mechanism of initial public offerings varies with countries at different stages and types of the firms going public. What are analyzed frequently are the Discounted Cash Flows (DCFs) Model, Price/Earning Model and the Economic Value Added Model.The last part of the paper focuses on the pricing practice during the development of capital market in China. By contrast to the world outside, China's pricing has its own characteristics with excess influences by the administrations. Market pricing has been an unshakeable destination of the capital market, and it is also the only way to a total disclosure of the underpricing puzzle myth in China.
Keywords/Search Tags:Initial Public Offerings, Pricing, Underpricing, Capital Market, Market Perspective
PDF Full Text Request
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