The Empirical Study On The IPO Underpricing In Chinext

Initial Public Offering (IPO) refers to the issuance of new shares to the general public for the first time. If the issue price of new shares is lower than the closing price of first trading day or first few trading days, it is defined as IPO underpricing. IPOs were systematically underpriced worldwide, no matter in developed markets or emerging markets. Emerging markets exhibit higher initial return than developed countries. Notably, IPOs in China mainland stock market are characterized by extraordinarily high level of underpricing even compared to other emerging markets.Chinext is an independent market from the main board. As the new constituent of China’s capital market, it is designed to meet the financial needs of innovative and fast growing enterprises. For those enterprises, Chinext is an important platform where interactions are available among small and medium enterprises (SMEs), venture capitals (VCs) and public investors. To be specific, Chinext is expected to accomplish four missions. First and foremost, it is to finance innovative SMEs and therefore stimulate industrial upgrade. The second mission is to improve China’s multi-tier capital market system and enhance the market depth. The third one is to promote entrepreneurship and increase employment. Finally, Chinext aims to develop alternative financial products for investment and risk management.The organization of this study is as following. First we give a brief introduction of the thesis in chapter one. Chapter two is the literature review. This chapter will:first review evidence of IPO underpricing outside Chinese market and in Chinese market, respectively; second, discuss a number of explanatory models of underpricing phenomenon. After literature review, the research design will be introduced in chapter three, including hypothesis development, research model and data collection. Chapter four is empirical analysis. The analysis consists of two sections, namely statistical features of underpricing in Chinext and the regression results of three hypotheses. Finally, the conclusion of this study and some advice are presented in last chapter.We attach much importance on the empirical analysis. First three hypotheses are developed in order to test the explanatory power of asymmetric information theory in Chinext. Second, the design of proposed research is clarified, including dependent variables, independent variables and regression models. Finally, the sample size and the source of data are introduced.