Research On IPO Pricing Mechanism Of China’s GEM

The Chinese GEM officially opened in Shenzhen Stock Exchange on October23,2009after almost a decade of preparations which indicates that the GEM has become an integral part of China’s capital market. With the research on IPO underpricing, researchers have started to pay attention to the impact of the release mechanism on IPO underpricing, and IPO Pricing Mechanism gradually becomes a research direction which researchers are interested in. IPO Book Building Mechanism has become a global trend. It is also becoming increasingly popular in Chinese IPO market. To be in line with international market, we have to accept and adapt to Book Building, therefore, study on Book Building Mechanism is definitely important.Because most enterprises have a few historical operating data, and most research are study on GEM of overseas, China’s Main Board as well as Small and Medium-sized Enterprises Board, the academic achievement on China’s GEM and its Pricing Mechanism is little. It becomes a subject to be explored whether the Book Building can adapt to our current capital market and reduce the rate of IPO underpricing.Using all the276new shares listed on the GEM from October30in2009-November30in2011as a sample, this article conducts an empirical analysis in an innovative way on the IPO underpricing under the Book Building Mechanism from the point of IPO range of inquiry, pricing adjustments and the number of institutions participating in the inquiry, using new shares listed on the GEM as a sample. The study found that the range of inquiry and pricing adjustments can explain the first-day initial return well and strengthens the market of the IPO pricing. But institutional investors don’t improve the accuracy of the IPO pricing and the Book Building Mechanism remains to be constantly improved.The findings of this article not only examine the impact of the Pricing Mechanism on IPO underpricing, affirm the positive role of China’s Book Building Mechanism, but also point out the place needs improving, which has the theoretical and practical significance.