An Empirical Study On The Initial Return Rate Of IPOs On ChiNext

October 30,2009, the formal creation of ChiNext indicates the further development and improvement of multi-level capital market. The first listed companies on ChiNext with high issue price, high price-earnings ratio and high-scale funding aroused wide attention from various stakeholders, investors who hope for IPO on ChiNext provoked much discussion. Good times don’t last long, the ChiNext stock market appears ups and downs in 2010, especially after May. Then what factors affected the initial return rate of IPO on ChiNext? Did the development of ChiNext show a certain tendency to change? With these questions, the author began this study, hoping to get the achievement of current stage about ChiNext, as well as provide some investment advices and management references to the investors and regulators.ChiNext is a concept that corresponds with the mainboard, which is outside of the mainboard market, provides development opportunities and ways to finance for those Small and medium enterprises(SME) who cannot be listed on the mainboard temporarily, and it was also known as the second stock exchange market. Many countries and regions where the economy is relatively developed have set up GEM, took the U.S. NASDAQ market as the representative. Like other stocks, the IPO on ChiNext also associated with issue of high initial return rate, additionally the ChiNext is a new plate, so ChiNext IPO’s initial return rate naturally become the focus. Up to December 31,2010, there have been as many as 154 stocks in Shenzhen Stock Exchange’s ChiNext Market. High price, high price-earnings ratio, fluctuations and other issues in ChiNext hindered its function and healthy growth in a certain extent. Compared to mainboard and small medium-sized enterprise board, the ChiNext is a high risk market, most of the companies listed on ChiNext are at the early stage of development, with many uncertainties on operating, the birth of ChiNext also means that there are more companies in China’s capital market which we are not familiar with. New practices need a new theory to guide, so based on the characteristics of the ChiNext itself, the research related with its theoretical issues will be of great significance.In general, the foreign researches on the IPO underpricing are based on the capital markets of developed countries, many of their assumptions are also based on effective markets, but the foreign underpricing theory cannot be completely applicable to Chinese stock market. After the IPO with extremely high prices of the previous companies, people cannot help but send this question, is there a deliberate underpricing in ChiNext IPO? Does the high initial return rate of IPO in ChiNext result from the primary market or the secondary market? Basing on this consideration, the title of this thesis is defined as the initial return rate of IPO rather than underpricing.Until finalizing this thesis, there has been more than 180 enterprises listed on ChiNext in the Shenzhen Stock Exchange, considering the time of thesis and the integrity of information disclosure, we select the sample of companies listed during the period from 30 October 2009 to 31 December 2010, when there are 154 stocks listed on Shenzhen Stock Exchange. Due to the sample is relatively small, in addition to the stock (300060), we did not exclude any other from this data, that is to say the codes from 300001-300059 and 300061-300154 of all the 153 sample stocks are selected.Through the empirical analysis of the whole sample we get the conclusion that the price-earnings ratio of issuing was significantly negatively related to the initial return rate of IPO, the time interval between issuing and listing, and turnover rate are significantly positively related to the initial return rate of IPO, and the investors do not care the financial position of the companies before listed. In addition, taking June 1,2010 when the ChiNext index launched as the cut point, the authors compared two sub-samples before and after the point, and find that besides the characteristics of the whole sample, the previous samples also show that the lottery rate of IPO is negatively related to the initial return rate, but the latter sample do not. The result of comparing analysis shows that the first stocks are very attractive to investors, excessive investment motive makes the transaction price deviates from its offering price shortly, and with the emergence of the break in ChiNext, coupled with the launch of the ChiNext index which plays a guiding role for stock price, the ChiNext stocks are no longer so hot, the investors have become relatively cautious and rational. The result of the latter sample shows that, initial return rate of IPO is only related to the turnover rate on the first day, and the impact is positive, which indicates that the motive of investors dominates the initial return of IPO, the majority of investors are interested in short-term profit, although it is a common phenomenon in the capital market, we must clearly see that our investors do not concern about the financial information from the offering companies. Faced with ChiNext, such a new thing, they still do not establish the concept of rational investment. That is why the IPO’s initial return rate remains at a high level when the issue of new shares does not use the way of underpricing.