Empirical Research Of The Ipo "Three High" Issue

With the global economic development has entered a new era, the capital market has become increasingly active, new financial instruments continue to be created. At the same time, China after 30 years of reform and opening up, private enterprises have become an important part of the national economy, and SMEs have become an important force in the economic development of a country. Our economy is in a transition period, relying on high-tech and high-tech development need to have the support of the GEM. In this condition and, after decades preparation and waiting, China’s GEM finally established.October 30,2009, when the first batch of 28 GEM stocks traded in GEM board of Shenzhen Stock Exchange means that China’s capital market entered in a new era-china’s GEM board. With the establishment of the GEM,Those SMEs that faced with the problem of a shortage of funds find a new hope. GEM greatly stimulated the enthusiasm of the majority of SMEs in China’s capital market, also contributed to the development of venture capital and private equity investments. A healthy development pattern between the investment of high-tech enterprises and capital markets is forming.The IPO reform began in June 2009 contributed to significantly improve the allocative efficiency of the primary market and made the IPO Market-oriented pricing mechanism gradually formed. However, along with China’s growing ranks of the GEM, many of the drawbacks are gradually exposed, such as fraud IPO, high issue price, high P/E ratio, high idle funds, executives change, performance decline, regulatory oversight, fraud financial, PE speculation, sponsor dereliction of duty, excessive packaging, lack of delisting system. One of the most typical problems GEM is the "three high" problem-the high price-earnings ratio, high over-raised funds and high issue price. With the lapse of time, these problems highlighted.Stock valuation method is generally divided into absolute valuation and relative valuation. Absolute valuation method is by predicting the company’s future profitability, and then gets the intrinsic value of the company’s stock through discounting. Because of China’s stock market usually use the relative valuation method to pricing, the paper mainly based on relative valuation method that = P/E* EPS to empirical analysis the GEM IPO issue price, the value of P/E disclosed in the IPO and earnings per share since 2009. First, the paper will statistic data of IPO since 2009, combined with the performance of the secondary market in various Industries, to research the industry average IPO price-earnings ratio of each month and the average transaction price-earnings ratio in the secondary market. The analysis of price-earnings ratio will explain whether the IPO price-earnings ratio deviate significantly from the secondary market.Then considering the second variable earnings per share (EPS) to empirical research whether the issuer intends to whitewash the EPS. At present, China mostly inquiry the investors off the net to determine the issue price of the stock. The offline investors will objectively offer the price in accordance with their performance of the company. In this paper, I will mine data from IPO-bound companies to compare the earnings data before the company listed with after. Then I found that the significant decline in performance is a widespread situation; then the article found that the former is significantly higher than the latter by comparing various industries net profit growth before the company issued with the industry average net profit growth of the whole market over the same period, and by the Wilcoxon rank sum test. Therefore, it can be inferred the existence of listed companies’profits packaging behavior, and inflated earnings per share will naturally result in higher issue price.By foregoing statistics and analysis, this paper draws the existence of profits packaging and other acts is one of the important causes of the IPO "three high". Finally the article recommended a few suggestions like disclosure of information before listing, intermediaries’ Constraint, the sponsors’ responsibility and IPO reform to curb excessive profits fabrication, false disclosure and other acts.