| Many stocks’ prices are down below their issue prices nowadays, which breaks the "IPO undefeated" myth. Therefore, how to predict a reasonable issue price for new stock has been discussed seriously. If the issue price is reasonable, the issuing company can raise the funds they need and the investors will invest rationally.All these can promote the stock market develop healthily. The causes of new stocks’ prices below issue prices are higher issue price and higher P/E ratio, which make the issue price far away from the intrinsic value. So we all call for the reform of IPO pricing system and the reform aims to achieve a market-oriented price. The market-oriented price is decided by the gross supply and need, in which the buyers express their will without government intervention.Though the basic theory of IPO pricing has developed perfectly and has been used successfully in mature markets nowadays, it does not work well in our stock markets. The major reason is that the methods we choose in IPO pricing process-are not suitable.So we should find out and discuss carefully about the internal and external factors which affect the Shanghai Stock market A share’s price. Then we will formulate an IPO pricing model for Shanghai Stock market A stock by using regression analysis.This paper is divided into six chapters:The first chapter is the introduction, which describes the background and significance of the study. And I will give a whole overview of the relevant literature of domestic and foreign. Then I will also introduce the ideas and methods of the research. Lately I will give the innovation and weakness of the paper.The second chapter introduces the phenomenon of shares broken in our stock markets and then discusses the reasons and finds out the major reason is the higher price.The third chapter introduces the existing theories and models of the IPO pricing.The theories of IPO pricing are the intrinsic value theory, capital asset pricing theory, arbitrage pricing theory. And the IPO pricing models are the major discount model (dividend discount model and discounted cash flow model), comparable companies Law, real options pricing model and multi-factor pricing model.But there are some problems existing in our current IPO pricing:Firstly, the financial and non-financial information of listed companies are not completely and timely disclosed; Secondly, our stock markets can not meet the needs of the prerequisites of the IPO pricing model, such as the efficient market purpose; Thirdly some variables of the valuation model are difficult to predicted, such as the discount rate and dividend growth rate of the discount model.In addition, because of the development of China’s securities market, many variables are selected without standard reference, and are selected and modified by the users subjectively. So we find out that the multi-factor pricing model is appropriate for our country in modern days.Chapter IV introduces the IPO pricing mechanism and the changes of pricing mechanism in China. The major IPO pricing mechanisms existing are fixed pricing mechanism, auction pricing mechanism, hybrid book building pricing mechanism and the mixtures of the prior three pricing mechanisms. Though the history of China’s securities market is short, its pricing mechanism has experienced a complex series of changes, which are fixed-pricing phase, short-term on-line auction stage, relative fixed P/E ratio, hybrid bodybuilding, inquiry and so on.Chapter V introduces the IPO multi-factor pricing model and empirical analysis. The impact of IPO pricing factors are divided into internal and external factors.Internal factors can reflect the price directly. After summarizing the results of previous studies under the premise, the paper selects 19 financial indicators to simulate the profitability of listed companies, compensation debt capacity, management capacity, expansion of capacity and ability to grow the size and other aspects of the situation. External factors do not directly reflect the company’s sustained profitability, but they can influence the IPO price.This paper selects the market fluctuations, industry average P/E ratio, the scale of stock issued and the underwriters rank to simulate the external factors. In the qualitative analysis of these factors, this paper uses SPSS software, selects 79 stocks of the Shanghai Stock Exchange as sample. Since the 19 internal factors have high multicollinearity, we use the first factor analysis to divide the 19 factors into six main factors. Then we will use the six main factors and the five external factors for regression analysis to formulate a IPO pricing model to predict the price of A-share in the Shanghai stock market. Finally, I will use the model to predict the two stocks issued in January 2011, and then compare the predicted value with the actual issue price. After comparing we will find that the actual price is much higher than the predicted value, which also verifies that the higher issue price is the main reason for share falling below the issue price.The last chapter gives some policy recommendations. 1.turn the approval system to registration system;2.reduce government intervention;3.an appropriate increase in the proportion of tradable shares of listed companies;4. enhance the underwriters’intermediary liability, underwriters’professional pricing power, and expand inquiry team.The ultimate goal of this study is to formulate a multi-factor pricing model as a reference for the issuers, underwriters and institutional investors in the pricing process.Though there are some deficiencies in this article, such as the selection factors may not be comprehensive, and the empirical results may effect a deviation from ideal, the final regression equation can be used as a reference to some extent. |
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