The Empirical Research On The Effects Of The Reform Of IPO System On IPO Underpricing

Initial public offering (IPO) underpricing means that the price for a new issue is underestimated, that is, the closing price on the first trading day is higher than the offer price, which means that new share subscribers will obtain significant excess return immediately after listing. The degree of IPO underpricing is considered as an indicator for IPO efficiency.China A share market has a higher IPO underpricing level than those in developed markets and even some emerging markets. There is a strong speculation for new shares in the primary market, which affects the pricing function of the market.The China IPO mechanism has experienced a market-oriented process. To promote further market-oriented pricing of new shares, in June 2009, China Security Regulation Commission established―the Guideline on the Further Reforming and Perfecting of IPO System‖. IPO underpricing level in A-share market reduced from the 100% at the restarting point of this round of IPO. Until Feb. 10 of 2011, nearly 50% of IPO stocks listed in 2011 break the offering price at the first trading day, which is unimaginable in the previous A share market.This paper compares the IPO underpricing level as well as its influential factors before and after the IPO reform. The reform has been significantly reducing the underpricing level in A share market. The multiple regression models indicate that the influential factors of IPO underpricing are different after the IPO reform. The IPO reform has achieved its expected target and improved the pricing efficiency of the capital market.