Empirical Research On IPO Underpricing Issue Of China’s SME

IPO underpricing is a common phenomenon in the securities market of the world, since1973this phenomenon present by American scholar Logue, attracting a large number of scholarsto research this, and put forward the theory of asymmetric information, institutional factors,control, and behavioral finance theory. In contrast, The IPO underpricing of China’s Small andMedium sized enterprise Market far more than the mature markets abroad, and has been too highfor long time, which greatly impair the efficiency of resource allocation. This paper is based onthe behavioral finance theory, and has chosen643companies which have been through theequity split in small plates, to explore the effects that investor cognitive biases and investorsentiment have on IPO underpricing, which has highly theretical and practical significance.The thesis is divided into five chapters, the first chapter presented the background andsignificance of this study, which described the development of China’s IPO system and smallplates, aiming to pave the way for empirical research; the second part detailed IPO underpricingliterature from two dimensions: abroad and domestic market, it provides theoretical basis for theanalysis of IPO underpricing. The third chapter integrated behavioral finance into IPOunderpricing theoretical analysis. The IPO decision based on behavioral finance was firstlydiscussed, then followed by the effect of the investor cognitive biases and investor sentiment onIPO underpricing, the final part is investors structure and their psychological deviation. Thefourth chapter is empirical analysis, two models were used, the first one test the pricingefficiency of IPO in small plates during the sample period, while the second model conductedempirical analysis with11indicators of a multiple regression model, and the combination ofbehavioral finance theory. Chapter five given relevant suggestions to securities regulators,investors, issuers and underwriters, stock exchanges, according to the results of empiricalresearch conclusions.The pricing efficiency model results show that the high efficiency of IPO pricing in smallplates, the issue price is not low-priced, and the high IPO underpricing is mainly due to theirrational behavior of investors in the secondary market of small plates. The IPO underpricingregression model results shows that: the actual fund-raising amount, the first day of turnover, the rate of return in medium to small plates in the first day, the rate of return in medium to smallplates for20trading days, and the average depricing rate of first five IPO has significant impacton depriing rate, which also confirmed that investor cognitive biases and emotions is also animportant factor of the IPO underpricing in small plates.