The Research On IPO Pricing Mechanism Of China GEM Board

The GEM (Growth Enterprises Market) Board represented by NASDAQ of the United States has achieved a fast development and made a great success in the world, and the GEM has created a large number of the world's leading multinational companies. But the launch of the GEM in China has experienced a decade of twists and turns and was officially listed in October 30,2009. GEM is also known as the Second Board or the Second Stock Exchange, which provides a platform for the small and medium enterprises that can not be listed on the Main Board. The GEM is an important supplement to the Main Board and plays an important role in a country's capital market. The launch of the GEM in China is to provide a financing platform for supporting high technology, high-growth Small & medium enterprises and venture capital financing of investment channels, in order to adapt to China's new market economy and promote China's socialist market economic reforms. Soon after GEM companies were listed in China, however, there have been high prices, high price-earnings ratio and high fund-raising in the GEM but not the characteristics of high growth. What's more, the stock price of many companies was below the issue prise after IPO, resulting a big loss of the investors and a serious impact on long-term development of GEM. An important reason for these problems is that in current the pricing mechanism the stock price can not accurately reflect the company's intrinsic value and growth characteristics. Therefore, the GEM stock IPO pricing mechanism is an important factor of the fairness and efficiency of the stock issuance market and secondary trading market, related to the health of the securities market. This paper is trying to identify the problems of the GEM IPO pricing mechanism and to improve the IPO pricing mechanism.The general idea of this paper is based on the foreign pricing theory and pricing methods to fully understand the evolution of China's IPO mechanism, the characteristics of China's GEM and the main problems at present, in order to make the major stakeholders analysis to identify GEM IPO pricing mechanism problems and give many reasonable and feasible measures to improve the situation. Moreover, by use of the secondary market stock price discovery features this paper proposed the GEM IPO pricing of earning-related multi-factor model and use the case descriptions and verification.In structure, the first part introduces the background and the significance of the article, makes conclusions and a brief commentary of the theory of foreign and domestic research, then article about research methods and ideas for the structure. Second part focuses on common foreign used IPO pricing theory of both the intrinsic value and factor model, and three IPO pricing methods of valuation which includes discounted cash flow method, the value-added economic benefits method and comparable company method. And a brief introduction and summary of comparison of several major pricing of fixed issue price, total tender inquiry system and auction mechanism were made. The third part reviews the evolution and development process of the audit system and the IPO pricing methods, then the company characteristic, GEM market characteristic and a wide range of statistical date was summarized. The forth part analyses the behaviour of listed companies, underwriters, investors and regulators which are involved in the IPO pricing process, to explore the problems of the current mechanism. And the last part lists several methods to improv GEM IPO pricing mechanisms,.The innovation of this paper was reflected in two aspects:First, the major IPO stakeholders were analyses to identify loopholes of current pricing mechanism, and then some reasonable solving strategies were given. Second, the multiple factors price-earning ratio related pricing model was proposed to price more accurately for GEM companies when issue new shares.This article also has two main shortcomings. First, as the GEM were created recently, the data chosen in the paper were not enough in terms of both time span and sample amount. Second, the model proposed may not precise enough and the applicability of the model need further study.