Empirical Research Of The IPO Pricing Issue

Since being put in force in June.2009, the innovation of IPO hasobviously optimized the macro-distribution of the market resource and madethe marketization mechanism for IPO pricing gradually forming. However,at present a mainstream opinion in securities industry is that thephenomenon of pricing with high P/E, high valuation, and exorbitantlyraising funds has appeared gradually since the window-guidance’s beingcancelled and the new innovation, especially in GEM and SME market.Because GEM is too young，the empirical research in this thesis adopts thesamples of SME market.By now lots of experts in securities industry have researched the highIPO pricing phenomenon and given their own thesis. In my thesis, I analyzethe IPO situation during this6years since the share-trading reform in2006,combining the performance within each industry in the secondary market, toresearch the relevance and BIAS between the IPO P/E ratio and the monthlyaverage P/E ratio in the secondary market in each industry；Finally I findthat their is no such an obvious bias. Since the IPO P/E ratio is not muchhigher than it in the secondary market，maybe the crux can’t be confined tothe pricing process; but most of the experts and investors claim that theoffering price is too high, we should turn to the P/E fomular：P/E ratio=price per share/earnings per share, that is, price per share=P/E ratio*earnings per share. So, if the P/E ratio is not so high, the eps should be a focus. So next paragraph I empirical research whether there is exaggerationwithin the eps.Bookbuilding institutions’s pricing is a key factor in IPO pricing process,in other words，IPO price is determined by investors essentially, and theirquoting is determined by their expectation on the performance of the issuerin the future. The expectation can be from the information disclosurepresented by the issuer and the profit forecast made by the researchinstitutions (of course the latter must be affected by the former significantly).I compare the profit forecast made by the research institutions and the actualvalue of the listed companies in SME, to find that the former is much higherthan the latter. The I turn to the net profit data in the information disclosurepresented by the issuer， after my comparison between the growth ratewithin the last3years before their IPO and the growth rate within the first3years after their IPO，to find that the growth rate dropped sharply. Finally Icompared the growth rate within the last3years before their IPO to thewhole market data，and execute a Wilcoxon test，to find that the former ishigher than the latter obviously. So, I can declare that the growth rate in theinformation disclosure presented by the issuer has been fabricated, and theexaggerated eps causes the high IPO pricing.Finally, I present several innovation suggestion to suppress thefabrication for the profit, for example, the pre-IPO constraint rule, thepost-IPO profit constraint rule and the post-IPO shareholders’ rightconstraint rule.