The Research On The Impact Of Financing Constraints On IPO Under Pricing

IPO underpricing refers to the phenomenon that the closing price of the stock on the first day of IPO is often substantially higher than the issue price of the IPO shares of companies, which can be influenced by both internal and external factors. Due to information asymmetry in the financial markets, external financing of companies is subject to the frictions of financial constraints. This article studies IPO underpricing deeply from the perspective of financial constraints.Firstly, the author analyzes the impact of financial constraints on IPO pricing in theory. On one hand, higher pricing of IPOs can be considered more advantageous since higher prices allow companies to raise more capital; on the other hand, if the company can get the status of listed companies through IPO, it will help companies to establish disclosure of information in line with the regulatory agencies and facilitate investors with channels to more closely understand the operating performance and other related information of the company, thereby reducing the company’s financing constraints. As a result, companies are seeking a balance. For companies facing stronger financial constraints, the benefits through the IPO to ease financing constraints will be relatively larger and thus they will be more willing to bear higher IPO underpricing to win the welcome of the IPO market. Secondly, the author studies the measurement of financial constraints. On one hand, financial constraints is related to the company’s characteristics, such as the size of asset and the reputation in the market; on the other hand, financial constraints is related to the financial environment which the company faces.Then, the article empirically analyzes the relationship between IPO underpricing and financial constraints using multiple linear regression analysis, the correlation analysis and directed acyclic graph. The article selected the 1727 enterprises sample data of the IPO from November 2,2001 to July 2,2015 and uses size, age, and cash flow of the company and the financial market index as the proxy of financial constraints. The empirical result shows that the IPO underpricing is negatively correlated with the size of the companies and negatively correlated with the financial market index.At last, from the influence of financial constraints on IPO underpricing the article studies, the author makes policy recommendations from three aspects, namely reform of subscription, allocation of financial resources and improvement of financial constraints.