China's Small And Medium-sized Board Ipo Underpricing Phenomenon Research

IPO-underpricing is a wide spread phenomenon around global stock markets. Since1970s, western scholars have done many related researches in which they established a lot of theoretical hypothesis and models to explain the phenomenon. One the one hand, this phenomenon of IPO-underpricing reflects the abnormal returns on the first day of stock’s initial public offering. On the other hand, it also illustrates different opinions of primary market and secondary market about the same stock.As an emerging country, the stock market in China has more severe underpricing phenomenon on the first day of stocks’public offering. Unlike developed countries, capital market of China is not well-established enough and the financial system is unsophisticated. Also, investors in Chinese capital market are not yet matured and the investors’decisions are largely controlled by their own emotions instead of prudent analysis of stocks. All these above would cause the IPO-underpricing of China much severe than that of sophisticated markets. By other means, IPO-underpricing reflects the compensation to the investor of primary market for the risk of company’s listing on the stock market. Finally IPO-underpricing also reflexes the different values estimated by two markets.This paper provides a theoretical and empirical investigation of the spanning role of the primary issues in the secondary market and the function of VCs (venture capitals) in the process. IPO-underpricing reflects the returns to primary market investors and the differences between primary market and secondary market. Through examining influencing factors of IPO-underpricing based on256companies’stocks, this paper separates the influencing factors into three kinds, consisting of influence of companies’ financial results, investor’s emotions and the primary market’s influence. This paper argues that the degree of IPO-underpricing in Chinese stock market is reducing during spanning of the samples, which reveals the improvement of the pricing efficiency of the two markets. Meanwhile the companies which introduced venture capitals are inferior than those companies which have not done this. Thus this reveals VCs assembled their resource to the inferior companies which needed the serves most. In addition, this phenomenon reflects that in China VCs" professional quality still needs to be improved.