Research On The Correlation Between IPO Underpricing And Earnings Management On The GEN

IPO underpricing,which connect a stock market pricing with secondary market trading price, has always been an important reference standard for the study of IPO pricing rationality and effectiveness of the secondary market. China Growth Enterprises Market(GEM) has been heavily concerned for the "three high" problem since the opening. The high growth of GEM listed companies are used to explain the high issue price and price-earnings ratio. However, since2010, the first day breaking issue price is of the frequent appearance. Due to special institutional background of China’s securities market, the listing and financing qualifications exists as a scarce resource. The company’s management has a strong motivation for earnings management to seek a high issue price listed, which can be found from the exposure of listed companies’earnings management and financial packaging from the domestic stock market. Then, are there significant earnings management behaviors during the initial public offering (IPO) of GEM listed companies? Is there any inherent link between earnings management and IPO underpricing?The paper suppressing the relationship between IPO underpricing and earnings management as the main object of study. First, the theories of IPO underpricing and earnings management are reviewed, the concepts are defined, and the previous research articles are reviewed. Then, based on the system and characteristics of GEM, combined with the earnings management theory, we will discuss the possible relationship between the GEM IPO underpricing phenomenon and earnings management. Furthermore, Jones model and adjusted Jones model are used to calculate the level of earnings management, investigating the issuing price, the first day closing price and underpricing of the GEM IPO companies, while the corresponding hypotheses would be put forward and the empirical analysis and inspection be done. Finally, according to the above analysis results, relevant policies could be suggested, including the reformof the GEM listing standards, sound financial information disclosure system of listed companies, strengthening the supervision of the earnings management behavior, improving the efficiency of IPO pricing, and promoting the rational and healthy development of China’s Growth Enterprise Market.