An Empirical Investigation Of Ipo Pricing In Chinese Growth Enterprise Market

The Growth Enterprise Market officially opened in Shenzhen Stock Exchange on October23,2009after almost a decade of preparation and on October31the first batch of28new shares listed on GEM at the same time. At present, the market is in gradual expansion. By7,April of2011, about200enterprises have been listed on GEM. The GEM mainly services for emerging industries, especially high-tech industries, making up for the shortcoming that enterprises are unable to raise capital through the board temporarily. Corresponding to the Main Board, GEM is an effective complement to it. On the one hand, introduction of GEM met the need to finance for corporations with high-speed development. On the other hand, the scattered social funds can be gathered in the capital market to support the development of enterprises and improve utilization of capital.IPO in GEM means that small and medium enterprises with high growth offer stocks and trades at the Exchange initially and publicly. Because of innovation of GEM enterprises, it is difficult to find comparable companies as a pricing reference objects with the same stage of development in the same industry. Meanwhile, the operating time of company is relatively short, and most enterprises are at the initial stage, have not experienced the development of the industry cycle and have little historical operating data. It is also difficult to assess the future development of enterprises accurately. In addition, it also involves the issuing companies, managing underwriters, investors, regulators and other stakeholders in the pricing process. Due to information asymmetry, the underwriters to protect themselves, the irrational behavior of investors and the offering pricing system and other factors, the efficiency of IPO is reduced. At present, China’s Growth enterprise Market is gradually pushed and in the trial period. Whether the stock can be in a reasonable price in the primary market has related to the stability and development of the secondary market or the capital market, thus it is important to make a reasonable IPO price in GEM.This paper has systematically expounded the existing IPO methods, analyzed their scope of application. With the characteristics of the growth enterprise market and listed companies, this paper analyzed the internal and external impact determinants of IPO pricing in terms of both diachronism and futurity by examining main growth factors of listed companies. By means of the multivariate linear regression on the determinants and IPO price, the multi-factor regression model of IPO pricing has been proposed and the impact of the determining factors on IPO price has been analyzed. An empirical study will be carried out based on SPSS and I drew conclusions as the following:(1) When companies set a price for stocks, they desire to raise funds as much as possible. Therefore, enterprises need to negotiate with investors who own information persistently. Inquiry mechanism for corporate stock also applies for GEM.(2) Regression study on samples issued shows that common factor H5representing future potential of an enterprise exerted the highest degree of impact on IPO price. It is clear that growth of listed companies in GEM is one of the fundamental factors determining investment value.To make IPO pricing in GEM reasonable, I propose that (1) main consignee should be given more rights to allocate shares;(2) main consignee and institutional investor should issue valuation reports through authoritative media;(3) system of institutional investor assessment should be established;(4) regulatory authorities should post recent IPO plan, so as to provide information about current situation of supply and demand on capital market for investors.The multi-factor model in the paper, based on the value of investment idea, provides a reasonable basis for judging the value of the stock for investors. It is of certain theoretical and practical significance to determine a reasonable mechanism of IPO in GEM, improve efficiency of IPO, balance the interests of stakeholders and optimize resource allocation.