An Empirical Research On GEM IPO Underpricing Of China

Initial public offering, means those companies having good investment opportunities and prospects, with the help of investment banks and accounting firms and other intermediaries, the first time openly sell its shares to the majority of investors, in order to raising the funds for the development of projects and companies.In the securities market, the IPO is of huge significance. it is an important part of the stock market. The IPO is the connection between the issuing market and trading market, it makes high-quality enterprises have the chance to raise financial capital and guide the idle funds to optimal allocation, improve the efficiency of resource. At the same time, IPO issuing also contribute to deliver the company’s shares to secondary market, so that investors can share the achievements brought about by the development of the company.IPO under pricing refers to the phenomenon that the closing price in the first day of a stock is higher than its issue price. Many scholars confirm that IPO underpricing phenomenon is wildly existed. Developed securities market underpricing is generally about15%, and the developing countries generally30%-80%. Obviously, IPO underpricing is contradict to the efficient market hypothesis (EMH).If the issuing price is based on market needs, underpricing should not existed. Because if there is room for arbitrage, the market will buy low, sell high, will eventually make excess returns disappear, Therefore, the extent of underpricing also become a measure of the market efficiency.Researchers generally based on the asymmetric information theory, the symmetry of information theory and behavioral finance point of view, trying to explain IPO underpricing phenomenon, thus forming a different theoretical hypotheses. However, theoretical studies tend to stay in specific market segments, failed to meet generally applicable to the market, the IPO premium theory the need for further exploration.GEM was established aims to provide effective financing channels for China’s high technology enterprises, provide exit channels for venture capital improve the Corporate governance structure of the small and medium Enterprises. In order to improve China’s multi-level capital market system, to solve the economic difficulties, adjust the industrial structure and change of development mode. Compared with the motherboard market, GEM listed companies in the listing conditions, distribution, information disclosure, the delisting system are quite different; by descriptive statistics, GEM listed companies generally show more good growth, investors GEM distribution companies show a higher level of enthusiasm and speculation atmosphere, underpricing also showed significantly higher than the motherboard features. IPO underpricing on the one hand reduce the risk in the process of issuing new shares, to ensure raising funds smoothly; However, it also bring negative impact to the development of capital markets. First, there is no risk to the issue of new shares, any company can successfully raise the necessary funds, enterprises will not really concern whether it is up to criteria for listing; Second, the return on risk-free subscription of new shares can be very high, attracting long-term hoarding huge amounts of money in the primary market, the accumulation of funds caused by the low efficiency of resource allocation, and even disrupt the normal economic activities and financial order.Based on this, this paper starts from the characteristics of the companies listed on GEM, combined with theory and results of previous scholars, select281stocks issued in GEM and64stocks issued in the main board as sample for empirical analysis. Underpricing rate as the explained variables,and the explanatory variables include the size of raise funds, the expense ratio of IPO, return on net assets, asset-liability ratio, operating income growth rate, the first day of the turnover, the market economy degree and so on. This article established the four models, model1,2and3, respectively reflects investor sentiment, the company’s own texture and underwriters factors. The model will be variable regression, and compared with the motherboard market. The results showed that the market sentiment index, online purchase success rate, listed on the first day of new shares turnover, issue size, the honeymoon period is significant factor. Through comparative analysis, higher investor sentiment and speculative bubble in the GEM market is the reason to explain the phenomenon that underpricing rate in GEM higher than the main board marketFinally, based on the empirical results, we concluded four policy recommendations:innovation the financial products, developing the capital market; advocate the value of investments, to foster rational investors; standardize and improve the information disclosure mechanism; play a positive role of intermediaries.The innovation of this paper is:(1) scholars on China’s stock market IPO underpricing been a lot of research, but the research of GEM IPO underpricing is very little.(2) comparative analysis of GEM to the Main Board, in order to more clearly to see that the GEM is higher than the motherboard underpricing phenomenon.The inadequacies of this article is:(1) the inadequacy of theoretical support. Western theory is built on the basis of a mature market, mature Western theory to study the phenomenon of IPO underpricing in China may not be entirely applicable(2)The model’s overall explanatory power is limited, the selected variables may not be able to reflect the assumptions of the theory.(3) In the course of the study did not join in the Chinese companies listed overseas, and did not compare the mainland GEM IPO with Hong Kong GEM IPO underpricing, the point of view may lead to limitations.