The Gem The Initial Public Offering (ipo) Underpricing Phenomenon Research

From1960s, underpricing phenomenons in initial public offering (IPO) have sparked concerns. Studies have shown that the initial public offering underpricing is widespread in security markets around the world. Being a brand new board, China’s Growth Enterprise Market (GEM) bears a significant IPO underpricing.Due to the special targeting of GEM, studies upon the underpricing thereof would be different from that of the Main Board, while whether the foreign GEM market research experience can be applied is still a question. Since China GEM takes off for only several years, no systematic researchs has been conducted thereon, either domestic or overseas.In the present paper, we have reviewed major foreign underpricing theories, discussed domestic or overseas underpricing studies, so as to find new approachs for GEM underpricing research. The present study explains the reasons from system for underpricing by analyzing the the impacts on underpricing from different issusing systems and pricing mechanisms, also by referencing to the mature GEM market such as U.S. NASDAQ. Besides, we further select153stocks listed on the GEM as a research subject, correspond their IPO financial data and market transaction data to the major underpricing theories, perform empirical analysis, and obtain some major factors for GEM IPO underpricing, and then try to find the most suitable theory for explaining the high-underpricing situation of China GEM. Finally, the presnt study gives countermeasures and suggestions to reduce underpricing.This article is divided into six chapters:The first chapter is the introduction, in which generally outlines the research background, provides the research subject, analyzes the research significance from both the practical and theoretical aspect, and indicate the innovations introduced by the present study.The second chapter is the literature review section, in which theory research method is employed to summary the major foreign theory for underpricing, and to review the existing research results on domestic IPO underpricing, thereby establishing a solid foundation for subsequent analysis and study.The third chapter employs comparative research method, reviews the history of development of China GEM, compares the different IPO issuing systems and pricing mechanisms, sums up the impact on underpricing thereof. Further, the study particularly compares the listing standards of the U.S. NASDAQ and China GEM, and figures out the reasons why NASDAQ is holding a lower underpricing with respect to China GEM.The fourth chapter analyzes the GEM IPO underpricing since the beginning, selects samples and factors to be processed, in which a plurality of financial variables and transaction information affecting the GEM IPO underpricing are involved, therbey purposing a theoretical model.The fifth chapter is empirical analysis section using several empirical research methods, which processes the sampled data by linear regression analysis using EXCEL, SPSS, Eviews, eliminates heteroscedasticity, collinearity effects by using different methods, and gradually optimizes the regression, whereby finally obtaining an optimal prediction equation for underpricing.Chapter Six is the summary of conclusions based on the above research and empirical analysis, provides comprehensive reasons for the GEM IPO underpricing, explaining the impacts on the underpricing of issuing system, pricing mechanism, listing standards and the types of investors. The study submits that the GEM underpricing is mainly due to the insufficient supply, deviation of pricing from the intrinsic value of the company, and the serious speculation. On this basis, the study suggests the following countermeasures from the system level and operational level to reduce the GEM underpricing:lowering the issuing requirements, implementing registration system for listing, improving the inquiry efficiency, increasing the proportion of institutional investors, improving the information disclosure system, and increasing discipline on false disclosure events.Hope that this study can help the market to produce a more comprehensive understanding of the GEM underpricing. Through this study, it is desired to provide solid theoretical supports and empirical findings for maintaining the healthy development of GEM, thereby providing a good financing platform for small and medium-sized listing enterprises and consequently to achieve an effective multi-level security market.