An Empirical Study Of The IPO Price Driving Factors

In1990，the Shanghai Stock Exchange was set up and soon after Shenzhen Stock Exchange was set up,and in2013thousands of listed company have been successfully listed on the stock market, China’s stockmarket has been developed and improved continuously, and the setting of IPO price has been wellconcerned by scholars from various countries. In the capital market, the price of the stock has long-termfluctuation trends. the price of the stock should be consistent with the intrinsic value of the company, stockis only a "virtual assets". It is a right certificate on behalf of the shareholders of the company’s rights, itsvalue should depend on the intrinsic value of the company, but now the IPO price is too low, the setting ofIPO price is unreasonable. At primary market the IPO price is too low, and at Secondary market the price ofstock is too high, leading to arbitrage and speculation which is Irrational behavior. investors do not takeattention to Company circumstances, business conditions, level of profitability, they pursuit of new sharesblindly, and the result is new shares prices soar on the first day of opening, investors who hold the newshares sell the new shares and get high profit, and then the price of stock go down all the way, and theinvestor loss of confidence in investing. This phenomenon make the serious effects to the healthydevelopment of the capital market, so it make capital markets can not play well the role of optimize theallocation of resources, It is not conducive to the future financing for listed companies.This article summarizes the three theoretical model for the assessment of the current value of thecompany, discounted cash flow model, economic value added model, the relative value of the model, basedon three valuation theory model we derivation of the factors that affect the price of the company’s IPO,andthey are divided into internal factors and external factors, internal factors Include such as the solvency ofthe enterprise, operating capacity, profitability, growth capability, external factors include price-earningsratio, market volatility, the stock issue size, industry characteristics, scientific and reasonable price of theIPO should be in considering of the internal and external factors and worked out, it should be reflect theintrinsic value of the company. In the empirical analysis Chapter, I chose the20stocks in the road and railtransport sector, through the establishment of the model, by virtue Eviews6.0software, we conclude theIPO price only have relationship earnings per share and price-earnings ratio, and have no relationship with the company’s solvency, operational capacity, the ability to grow, at the same time we conclude the issue ofprice-earnings ratio have no relationship with the company’s solvency, operational capacity, profitability,growth capacity, as well as stock issue size, through empirical analysis, we can see that China’s the settingof IPO price of listed companies rely solely on earnings per share and price-earnings ratio, and this pricehave no relationship with the company’s financial position indicators, can not accurately reflect the intrinsicvalue of the listed companies, only lead to the IPO price is too low, the high initial income rate misleadinvestors to believe that the purchase of new shares have no risk, purchase of shares become investors usedinvestment, as a result at primary market there are an excessive accumulation of funds, and misappropriatethe secondary market’s amount of money, it is not conducive to the healthy and stable development of thesecurities market. Finally, In accordance with the conclusions of theoretical and empirical research of thispaper, it is proposed to obtain reasonable price-earnings ratio, advocate changing the company’s IPO theapproval system to registration system, and improve the information disclosure mechanism to provideaccurate information in a timely manner as well as build and improve market supervision system. Theresearch on IPO price-driven factors has great practical significance and theoretical value to ensure IPOprice determine reasonably, and reduce the cost of financing of listed companies and ensure its successfulfund-raising, guiding investors rational investment, and guide the rational allocation of funds between theprimary and secondary markets, avoid a lot of funds stranded hoarding In the primary market, improve theefficiency of allocation of resources of the securities market, to promote forward the healthy and stabledevelopment of the capital market.There are different ideas and methods in this study comparing with the research of other scholars.Other scholars in the study IPO price drivers, always find relevant factors firstly, and then they useeconometric to make the IPO price to fit with relevant factors.But if China’s current IPO price itself iswrong, fitting the results will be no meaningless. Beginning of this article I pointed out that the China’s IPOpricing problem of excessive low and raised at the efficiency of the capital market,the IPO price should beable to reflect the intrinsic value of the enterprise, According to the IPO price should be able to reflect theintrinsic value of the enterprise, we made theoretical analysis of the IPO price drivers, and successfullyconcluded the internal and external factors that affect the IPO price, through empirical analysis whether thecurrent IPO pricing is influenced by internal and external factors, The result is the formulation of China’s IPO price only have relationship with earnings per share and price-earnings ratio, pointed out setting ofprice of China’s IPO is unreasonable. IPO price is too low and can’t truly reflect the intrinsic value of thecompany, while taking advantage of the statistics demonstrate this problem does exist, and finally putforward policy recommendations.