| The IPO underpricing refers to the phenomenon that IPO ends the first day of trading at a closing price greater than the offer price, which leads to high returns at the first day of trading. The initial public offerings are generally underpriced. But the underpricing phenomenon was first documented as a systematic increase from the offer price to the first day closing price until the 1970s by Stoll and Curley (1970), Logue (1973), Reilly (1973), and Ibbotson (1975). Efficient Market Hypothesis demonstrated that a market participant can’t keep abnormal return for a long time. However, the IPO underpricing phenomenon present departure from market efficiency, which Ibbotson (1975) call it the underpricing mystery. Thus, the IPO underpricing issue has been one of the most concerned ones in financial areas. Loughran Ritter and Rudqvist (1994)document short-rununderpricing in 25 countries, including both relatively new markets and mature markets. Especially, Chinese ipos in A share market exhibit a hugeunderpricing. During the period 1990-2013, the average size of underpricing was as high as 118.4%, which was higher than many developed markets and other developing markets. The pricing of new issues is the key part of the initial public offerings. And the size of the underpricing concerns the interest of every market participants such as issuers, underwriters and investors. What’s more, a huge underpricing will also do harm to the development of the capital market.China’s market is a new emerging stock market. Since its inception, China’s stock market has been tightly controlled by the regulators. A tightly-controlled system may decide the pricing and the issuance of the ipos and hence lead to a huge underpricing. And the pricing mechanism will play a more important role on the IPO underpricing, which is concerned with whether the offer price can reflect the value of the stock. During the period, several regulation changes on the pricing mechanism have been made, including pre-fixed P/E ratio method, cumulative auction method, cumulative price inquiry method and cumulative price inquiry from institutional investors method. After using cumulative price inquiry from institutional investors method, China Security Regulatory Commission promoted three regulation reforms on December 11th,2009, June 10th,2010 and October 11th,2012. How do the regulatory reforms change the IPO underpricing in China? Is the regulatory reforms useful to alleviate the huge underpricing? Based on the previous research, this paper documents the regulatoryreforms on the pricing mechanism, takes 17XX ipos in China’s A share market from 1992 to 2015 as samples, and separates the full sample into seven groups to investigate the impacts of regulatoryframeworks on IPO underpricing when controlling other factors. In the end, this paper tries to give some pieces of advice. The structure of this paper is as follows:Chapterl introduces the background, importance, objections of this research, outlines the general ideas of this paper and demonstrates the novelty and weakness of this research.Chapter 2 presents foreign and domestic researches of IPO underpricing problem.Firstly,this paper introduces main foreign IPO underpricing theories according to whether market participants can get access to asymmetry information. Secondly, this paper presents two kinds of domestic researches on IPO underpricing, including the empirical tests on the foreign underpricing theories and the studies concerning the regulatory factors in China. Comments on foreign theories and studies from domestic and foreign are also available in this chapter.Chapter 3 documents the main regulatory reforms on the IPO pricing mechanism.Chapter 4 designs the whole empirical research of this paper, including the selection of sample, econometrics model and dependent variables.Chapter 5 analyzes the impacts of regulatoryframeworks on IPO underpricing by judging the coefficients of dummy variables in the econometrics models.Chapter 6 draws some conclusions based on the empirical results in Chapter 5 and propose some advice. This paper argues that the tightly controlled system of IPO pricing mechanism is one of the key drivers of the huge underpricing in China’s A share market. This huge underpricing phenomenon can be improved by insisting the market-oriented regulatory reforms. |
