The Research Of IPO Pricing Based On Market Approach

With the development of China's stock market,more and more companies raise money through IPO.In the whole process of IPO,IPO pricing is a vital part.Reasonable IPO price can make company issue successfully and raise enough funds,while also reduce speculation in stock trading,and promote the stability of the stock market.Since the establishment of China's stock market,our country always pricing based on price-earnings ratio,did not consider whether the companies are comparable in other respects.Pricing on the same price-earnings ratio can not reflect the true value of the company.Therefore,this paper will improve the traditional market approach which only uses the single price-earnings ratio,taking full account of the impact of diverse indicators on IPO pricing.Based on the above background,this paper first reviews the theory of enterprises' competitiveness and analyzes the transmission mechanism of the impact of enterprises' competitiveness on IPO pricing,thus laying a theoretical foundation for the research on the factors of IPO pricing.Simultaneously,this paper reviews the traditional IPO valuation method,compares and analyzes the applicable scope and limitations of various valuation methods,and puts forward the feasibility of using market method to study IPO pricing.Next,this paper based on five criteria to choose the comparable companies,which are industry standards,business scale,operating performance,growth and time factors,and finally choses 36 computers,communications and other electronic equipment manufacturing enterprises as the comparable companies of EMBEDWAY TECHNOLOGIES.Secondly,this paper analyzes the influencing factors of IPO pricing based on the theory of enterprises'competitiveness,which mainly includes three aspects:environmental factors,resource factors and capacity factors.Environmental factors include market power.Resource factors include the physical resources,intangible resources and human resources owned by the enterprise.The capacity factors include the profitability,growth ability,operational capacity,solvency,scale ability,innovation ability and corporate governance ability.And then builds the index system of influencing factors on this basis.Because the variables selected in this paper are more and strongly correlated,so this paper uses the principal component analysis method to reduce the dimension of the variables,and finally nine principal components are extracted.And then use the extracted nine principal components as the independent variables and the adjusted new issue price as the dependent variable for stepwise regression analysis,so as to obtain indicators which have a significant impact on the IPO pricing and the value ratio,and finally build the IPO pricing model to provide reference for the IPO pricing of EMBEDWAY TECHNOLOGIES.This paper finds that the profitability index,the growth ability index,the scale ability index,the innovation ability index,the market power index and the operation ability index all have significant influence on the IPO pricing,and the ratio of each index is 4.892,4.377,3.493,2.156,1.947 and 1.489.Therefore,appraisers should focus on the above indicators when they use the market approach to assess the price of new shares.Finally,based on the IPO pricing model,this paper finds that the forecast value of the IPO price for the EMBEDWAY TECHNOLOGIES is 15.13 yuan.This paper uses the market approach to assess the price of new shares,avoiding the limitations of income approach which only considers the intrinsic value,but also avoiding the limitations of the traditional market approach which only uses the single price-earnings ratio,making the IPO price closer to its true value.Therefore,the market approach is an effective way to assess the issue price of new shares.