Listed Companies Are Classified Based On Differences In Earnings

The stock pricing in IPO is crucial for the efficiency of capital market. In fact, as the development and implement of capital market, the stock pricing in IPO was gradually marketized especially after the transferring to auction pricing on internet. At the same time, the "high price、high PE and high ratio of raising money to plan’ became important issues in IPO for it reflects the low efficiency of capital market.It is confusion that few academic literatures pay attention to the "high price. high PE and high ratio of raising money to plan " in IPO, even it got broad concerns from media、experts of market research and the China Securities Regulation Committee declared to solve the problem by institution transform. There are less than20literatures aimed to reveal factors behind the3Hs, and most of these literatures are lack of theoretical framework and empirical study. Without dimensional characteristic, PE ratio is the most important and widely used index to evaluate the relative value of stocks, so this paper start with the analysis of PE to find factors that lead to3Hs.This study is conducted by three steps:First, it bring to light that the high PE of small scale stocks lead to the high PE of the market, and the high PE in IPO is driven by the high PE in the secondary market due to the interaction between them. Second, to reveal the contributing factors of high PE, we conducted a survey and got the viewpoints of the market, and then extend the price-earnings model; considering China’s special economic institutional background and capital markets practice, in addition to factors that is most concerned about, such as the growth and liquidity, we lay emphasis on factors with "Chinese characteristics":the underdevelopment of institutional investors in a heavy speculative atmosphere、the industrial policy in background of state intervention in the economic as well as the corporate governance issues under the special system of property rights. Third, we carry empirical research based on the data of the A-share listed companies classified by size. The conclusions are as follows:(1) The liquidity difference is one of the important factors causing different PE. Liquidity and price-earnings ratio has a positive correlation between the sectional point in time selected in this paper, the small-cap stocks have better liquidity than large-cap stocks, and this difference is very significant.(2) The leverage ratio difference is one of the important factors causing different PE. Full sample regression analysis showed that the leverage ratio is negatively correlated with the price-earnings ratio, and variance analysis also shows that the leverage of the large-cap stocks is significantly higher than those of small-cap stocks.(3) Ownership difference is one of the important factors causing different PE. In the full sample regression, the state-owned companies have a significant price-earnings ratio discount; variance analysis also shows that the proportion of state-owned large-cap stocks is significantly higher than those of small-cap stocks.(4) Industrial policy is one of the important factors that affect the price-earnings ratio of small cap stocks. The results from the empirical analysis, within the small company, companies belonging to the strategic emerging industry of the five-year development plan from2011to2015have higher price-earnings ratio.(5) The proportion of institutional ownership has no obvious correlation with PE level. Some argue that the power of institutional investors is too small, which cause a heavy speculative atmosphere pushing up the price-earnings ratio of the small-cap stocks, and this study found no evidence related with that. In addition, ROE and price-earnings ratio has a significant negative correlation, to some extent, this explains that a higher level of ROE is not regarded as better growth.To be honest, this study is just a useful exploration to reveal the deep-seated causes of the difference in the price-earnings ratio of different size listed companies, and this framework still needs further improvement, such as conducting a more dynamic perspective to consider the impact of leverage on the price-earnings ratio, and the empirical analysis did not cover all the listed companies for it was difficult to solve the heteroskedasticity problems caused by large amount of the cross-sectional data samples.