Research On The Risk Of IPO Trading Price Below Offering Price Based On COX Proportional Hazard Model

This study discusses the influence of 2009 IPO reform on the phenomenon of the trading price for new issues falling below its offering price from January 2005 to June 2014. We use all the initial public offerings(IPOs) in the main board(including SMEs) and cut the data into two periods from the point of June 10 th 2009, separately analyses the influence factors of the risk that trading price below offering price. The comments concerning further promoting the reform of new stock issuance system issued by China Securities Regulatory Commission in June 2009 has great importance to China’s IPO market. The four contents of the reform accelerated the process of IPO marketization. At the beginning of this reform, three main problems: high offering price, high PE ratio and high exceeded raised funds appeared in the stock market, the same with the phenomenon of trading price below offering price. But this was not a reflection of stock market degradation, on the contrary, it was a inevitable step on the process of marketization,it was the result of the equilibrium between risk and benefits in the primary market.This paper firstly compared the issue quantity and the number of stocks whose trading price fell below its offering price in 180 days after listing before and after the IPO reform. Besides, the paper also analyses the difference in stock market return, PE ratio and stock price volatility between the two periods. Then we built two Cox proportional hazard models to estimate the influence factors of IPOs price falling in the two periods. Our results show that the main factors that affect the price falling before the IPO system reform are stock market condition. Because CRSC released the IPO price regulation, price update, winning lottery ratio, offering PE ratio, first day turnover, initial day return before listing, stock market return and underwriter reputation all have significant impact on trading price falling below offering price after the IPO reform. After the model, we made a comparison on the influence factors of the two parts, and estimated the impact of new stock issuance system reform on the IPOs trading price falling below its offering price. At last, we came up with some advice which will be useful to IPO market regulators, issuers and underwriters.