The Research On IPO Under-pricing In China’s Growth Enterprise Market

After10years preparation, the high-profile GEM has finally opened onOetober23,2009. As an important part of establishing multi-level capital marketsystem in China，GEM provides an important financing platform to SMEs and aconvenient exit route for venture capital in China. However， The first dayunder-pricing rate of the first28enterprises is as high as106.23%on average, thecrazy performances of GEM cause intense debate about IPO under-pricing when itopened. Higher IPO under-pricing brings strong markets peculation atmosphere, andgreatly hinders the healthy and orderly development of the GEM. Therefore，thisthesis combines theoretical analysis and empirical research to make a comprehensivestudy of IPO under-pricing phenomenon on GEM, which has some theoretical andpractical significance for promoting the efficiency of SMEs’ financing and modifyingthe operating environment of China’s capital market.This paper, first studies the research results and conclusions of IPO under-pricingphenomenon both at home and abroad, and based on the theoretical research, thepaper analyzes the development and level of IPO under-pricing on GEM intuitivelyfrom the aspects of high price, industry distribution and regional distribution for theIPO companies. Second, according to the actual situation of GEM, the paper selects18factors may affect the IPO price from the four aspects of the basic companyfinancial factors, the supply and demand of the new shares, the team managementlevel factors and the securities underwriter factors, builds multivariate linearregression model, and finally gets8factors that affecting the GEM IPO under-pricing.Third, considering the endogenous variables and the supply and demand of theprimary market and secondary market comprehensively, the paper constructssimultaneous equations model, and draws the interaction relations between the firstday under pricing rate and the supply and demand of the primary market andsecondary market. Forth, the paper puts forward the theoretical assumptions of "lag effect" based on the "conformity" theory of Welch, constructs a sequence of theaverage under-pricing rate on first day, after ADF test, regression (AR) model, buildsGARCH (p, q) model to analyze IPO under pricing in dynamic angle, the results proofthe IPO under pricing on GEM exists "hysteresis". Finally, the paper get thecorresponding conclusions.The results show that, since China’s GEM was founded, the IPO price rate levelis gradual declining in fluctuation, the first day under-pricing rate of204stocks is28.96%on average, since the GEM index was issued. Among the8variables thataffecting the GEM IPO under-pricing, most are capital market factors reflecting thesupply and demand, such as IPO P/E ratio, Lot-ratio, turnover rate, trading volume,issue price, GEM index and so on, while the influence of the company basic factors isrelatively small. The outcome of simultaneous equations shows the primary marketaffects little to the IPO first day under-pricing rate on the secondary market of theGEM. But, the IPO under-pricing for the stock issued before may affect the demandof the primary market, and the effect is lagging. Through the construction of GARCH(1,1) model for the sequence of the average under-pricing rate on first day, the paperproves the IPO under-pricing rates in T-1, T-2, T-3period are presenting significantpositive correlation with the IPO under-pricing rates in T period. The affect ofexternal factors on the IPO under-pricing level is no only in the present period, butalso continue to post several period.