China Ipo Underpricing Research

IPO underpricing or the short- run under-pricing of new stocks ,which means a largepositive gain of a new issue immediately after flotation, is a very universal phenomenonof the world stock markets ,both in the developed countries and the developingcountries. such an underpricing of new issues has aroused the wide attention of theacademic circles since it was been discovered as a puzzle of the pricing of initial publicoffering by Roger G. Ibbotson in 1975.Comparing with the other two hot issues in theIPO market "long-run overpricing" and "hot issue market". It has been the most popularstudy subject until now.The relevant IPO literature is now fairly mature in the developed countries. Such asthe Signaling Hypothesis, the Asymmetric Information Hypothesis, the Intermediary'sReputation Hypothesis, the Bandwagon Effect Hypothesis, the Lawsuit AvoidanceHypothesis and so on. The main stylized facts have been established, and most theorieshave been subjected to rigorous empirical testing.According to some research, in the emerging financial market in East-Asia areas, theaverage first-day returns of new stocks show an obvious 20 to 40 percent higher than thatin the western markets. Further more, China has been found to have the most seriousunderpricing of IPO in the world. Its average initial return of these shares so for is morethan 100 percent , however it keep s going down year by year.For such a phenomenon, scholars both at home and abroad have put foreword sometheories as explanations. While it's impossible to do justice to all theoretical andempirical contributions within the available space, In this article, my discussion is basedon the main "milestone" papers that have shaped the way I think reflects my tastes. An empirical analysis has been made in this paper by using the methods ofdescriptive statistic, stepwise regression, multiple regression analysis.After setting upseveral multiple regression models for three different data samples, it found some keyfactors which influenced the IPO pricing in China, and tried to point out why those keyfactors have significance influenced on IPO price. In order to improve the capital marketefficiency, the suggestions about how the pricing of new shares should be marketed andreformed according to Chinese national situation was put forward.Starting from the comprehensive introduction of the IPO underpricing in Section 1,this chapter outlined the status of the IPO underpricing in the world, and also a briefintroduction about the main theories and literatures will be given here.Section 2 introduced the analysis of the extraordinary high returns in IPO market.In this chapter the article intends to explain the reason from the perspective of theefficiency in market pricing mechanism.Section 3 presents the data and the methodology for the designing of the short-runreturns regression model. In the empirical studies, 829A-share initial public offerings thatlist on Shanghai and Shenzhen Security Exchange from 1996 to 2005 have been chosen.Two sub-samples, one from 1996 to 1999, the other from 1999-2005 are then made tocompare the regression results and related independent factor variables. The resultsconfirm the former predictions we have made and draw a conclusion that a marketableIPO system should be set up.Summary and suggestions appear in Section 4,accroding to the rough regressionanalysis, the reason for our country's high IPO discount was found in depth, and somesuggestion to reduce the underpricing were been made.