A Research For The IPO Underpricing Of The China’s Growth Enterprise Market

After ten years preparation, the China’s Growth Enterprise Market (GEM) was finally born on October30,2009. At the beginning of the GEM’s breeding, it is dedicated to promoting the development of China’s high-tech and high-growth enterprises. As the important role of improving multi-level capital market in China, the GEM undertakes the great historical responsibility to drive the adjustment of our country’s economic structure and improve the governance structure of public companies. As a whole, it is of great importance to the sustainable development of the national economy. In just a few years, many scholars have paid the attention to the problem of the GEM IPO underpricing, which has been common for the public.The IPO underpricing in the China’s GEM has been a long-term phenomenon, which has brought an extremely adverse impact on the sustained and healthy development of China’s capital market as well as national economy. At the first, the huge amounts of money for the short-term arbitrage behavior will bring the high risk in the IPO pricing. At the same time, it will play the role of fueling the non-normal fluctuations in the stock market. At the second, the primary market won’t be functioning to allocating the resources because of no risk in the IPO. In this way, one company will successfully raise the necessary funds as long as it owns the access to IPO. At the last, the purchase of new shares will bring a high-free return, resulting in a lot of money’s driving from the production and circulation to the primary market for the risk-free return. Furthermore, it will make the speculative bubble and reduce the efficiency of capital allocation within the whole society.The GEM IPO market mainly includes three tripartite stakeholders which are the issuers, intermediaries and investors. This article will start from the relationship among the three sides to identify the reason of the GEM’s IPO underpricing, by researching the IPO underpricing phenomenon between the primary market and secondary market in the IPO process. In this way, it may give some advice so as to improve the China’s GEM.This paper is divided into five chapters. The first chapter includes the research background, the IPO underpricing theory in the domestic and foreign, as well as the research ideas and content. The second chapter describes the concept of the IPO underpricing. Then it outlines the questions caused by the GEM’s IPO underpricing. The third chapter analyzes the causes of China’s GEM IPO underpricing in an all-round way from three aspects, which include the evolution of IPO pricing in China’s stock market and the sides of the primary and secondary markets. The fourth chapter presents what the GEM should learn from the American NASDAQ market in four aspects including the IPO standard, issuance examination process, audit methods and channels of communication The fifth chapter summarizes the advice to solve IPO underpricing from the GEM IPO issue, IPO pricing, as well as optimizing the investors and the investment banks.