Empirical Analysis Of China’s GEM IPO Pricing

Since the establishment of the GEM, it provides an important financing channel forChinese SME. The PE of companies in the GEM is much higher than the mature mainboard, which is inextricably linked with the characteristic high-tech and high growth ofcompanies in the GEM. The right IPO price is in favor of company financing. The studyof IPO pricing can not be separate from influencing factors. By analyzing the factors ofthe IPO pricing, we build the multiple linear regression pricing model.GEM is different from the main board and small plates, this paper firstly analyze thedifference among the three to identify the characteristics of GEM companies, and thenfind out the internal and external factors which reflect these characteristics. In this paper,we use the principal component analysis method to analyze the internal factors whichaffect IPO pricing and extract five common factors which represent solvency,profitability, size, capacity development, operational capacity of the company, thenanalyze the five common factors and external factors by stepwise linear regressionmethod, finally build the multi-factor pricing model. Through the analysis of the modelwe can see that: Operational capacity of the company, company industry and distributionareas are all not in the final regression model, so these factors have no significant impacton IPO pricing. At the same time, profitability, scale capacity, solvency, capacitydevelopment of the company and the issue number are embodied in the model, showingthat the financial indicators which contain the common factors significantly positivelycorrelate with IPO pricing, and the issue of the number of IPO pricing was negativecorrelation. These conclusions are consistent with the actual situation. We should payattention to the development capacity of companies with rapid growth in GEM, inaddition, the profitability of the GEM IPO pricing has a direct positive impact that these conclusions are consistent with the actual situation of the GEM. Although multi-factorequation through the goodness of fit and test of significance, but it still requires furtherstudy to revise the model to make it more accurate.The paper concludes that the multi-factor pricing model quantifies a variety offactors of the model, so that stock price is closer to intrinsic value; the IPO price is moreaccurate. So IPO of companies which in the GEM is priced, we should consider theimpact of a variety of factors on the stock prices. Multi-factor pricing model is moreapplicable to companies in the GEM.