Research On IPO Underpricing Of Chinext Firms

On October 30, 2009, the ChiNext embraced its first trading day with 28 listed companies. By January 13, 2011, the size of ChiNext has grown more than five times into 163 companies. ChiNext is an effective supplement to the Main Board and SME Board as it is set up for companies which cannot satisfy the requirements of the Main Board or SME Board. In addition, ChiNext is mainly established for those companies in high-tech area with promising growth potential.IPO underpricing means the percentage increase from the offering price to the closing price on the first trading day. IPO underpricing exists in almost all stock market, and has ever been a hot issue since 1960s. This paper studies IPO underpricing for 163 IPOs issued on the ChiNext from October 30, 2009 through January 13, 2011. My empirical research takes consideration of three independent aspects: underwriter reputation, ownership structure, and fundamental factors.From the perspective of underwriter reputation, I choose the proxies for underwriter reputation at first, and then study the correlation. Just as previous research, I find that IPO underpricing has a negative relationship with the reputation of underwriters. Besides, I find that reputation can be accumulated, i.e. an investment bank which underwrites a larger number of stocks can attain lower IPO underpricing for its clients.From the perspective of ownership structure, I study the Pre-IPO ownership structure and Pre-listing ownership structure. Through empirical study, I find that Pre-IPO ownership structure has no significant correlation with IPO underpricing. Similarly, ownership concentration has neither insignificant correlation with IPO underpricing for Pre-listing ownership structure. However, the number of institutional investors is negatively correlated with IPO underpricing for Pre-listing ownership structure. In addition, number increase of institutional investors from Pre-IPO ownership structure to Pre-listing ownership structure shows a negative correlation with IPO underpricing. From the perspective of fundamental factors, registration capital and turnover rate on the first day are both positively correlated with IPO underpricing, and gross proceeds is negatively correlated. However, the life expectancy of companies listed on the ChiNext has no significant correlation with IPO underpricing.