The Impact Of Prepayment System On The Purchasing Behavior Of Investors Of New Shares

The fairness and pricing efficiency is two important standards for the rationality of the IPO system.However,from the academic papers published by China's major economics and management journals,the issue of fairness for allocation of new shares issued is a long-neglected research issue in China.Although,in recent years,domestic scholars gradually realized the importance of fairness of new shares placement,but their research periods mainly concentrated before 2013.After 2013,the system and market conditions of new shares issued are quite different from those before,and it is of great practical significance to discuss the fairness of the new shares allocation under new institution.In addition,based on China's unique institutional background,exploring the issue of fairness of new shares placement can enrich the underwriter preference theory.Therefore,based on the new regulation of canceling the full prepayment of new shares at the end of 2015.We locate our research period from July 1,2014 to December 31,2016,during which the biding price is relatively stable.During the period researched,the return on new shares are very high,the median days for returns of new shares issued reached the up limits continuously is 11 days,and all IPO companies,close prices of new shares are higher than the issue price.However,before the cancellation of the full prepayment for new shares subscribed,investors need to pay in full according to the number of new shares subscribed which usually cost a lot.Therefore,the liquidity pressure level faced by the fund management company has an important influence on the purchase of new shares.In this case,the choice of which IPO companies to purchase and the amount of new shares proposed to subscribe have a crucial impact on the level of revenues gained from the purchase of new shares.However,after the canceling of full prepayment for new shares subscribed,investors need only to pay in accordance with the number of new shares allocated,the amount of funds required are often small,the liquidity situations are usually no longer a obstacle to the subscription of new share.In this paper,we explored relation between the subscription behavior of the fund management companies in the IPO process and the liquidity of the fund management company.We find that the fund management company with a higher level of the liquidity tend to be more active in the purchasing of the new shares issued.Which means there is an invisible threshold of liquidity during the purchasing process of the new shares issued.In such a case,the benefits of the underpriced new issued shares are mainly gained by the investors with higher liquidity level.However,after the cancellation of the full prepayment of new shares,the liquidity of a fund management companies has a weaker impact on the subscription behaviors of investors during the IPO process,which means the improvement of the fairness during the IPO process.In addition,we further explore whether the commission relationship will affect the purchasing behavior of fund management companies during the IPO process.It is found that before the canceling the full prepayment of new shares,the commission relationship will affect the purchasing behavior of fund management companies during the IPO process,that is,the fund management company with a strong commission relationship can make better decisions related the subscription behaviors of the new shares issued.However,after the cancellation of the full prepayment of new shares,the commission relationships between the fund management companies and the underwriters have a weaker impact in the subscription behaviors during the IPO process.In addition,this paper also attempts to explore the causes of the change in the subscription behavior of new shares before and after the regulation of the full prepayment of new shares.We find that the liquidity pressure fund management companies faced during the process of new shares subscription have a significant impact.Specifically,this article find the relationships based on commissions have little impact on the subscription behavior of new shares when the fund management companies face a low liquidity pressure during the new shares subscription process;the relationships based on commissions have a significant impact on the subscription behavior of new shares when the fund management companies face a high liquidity pressure during the new shares subscription process.In addition,we also explores the probabilities of being allocated for the fund management companies based on the relationships of commission.The probabilities of being allocated are higher for fund management companies having relationships based on commission with the underwriters when the performance of returns for the new shares are good.However after the cancellation of the full prepayment of new shares,the commission relationships have little effect on the probabilities of being allocated for the fund management companies during the IPO process.The conclusion of this paper has some enlightenment to the reform of China's IPO system.First of all,regulators should continue to strengthen the regulation to weaken interests transportation behavior during the IPO process and improve fairness during the the issuing of new shares.Secondly,during the period of this study,the quotation of investors is mainly based on the total amount of proceeds raised disclosed in the prospectus,the issuance fee and the number of new shares issued,so the investors' quotation are highly consistent.The advantages of institutional investors have not been made the best use in the pricing of new shares.The Regulators should promote the efficiency of new shares pricing by making the offline investors pay a better role in the pricing of new shares issued and promoting the healthy development of capital markets.The innovation of this paper is that,firstly,based on the new IPO regulation system,it discusses the fairness of the new shares allocation and enriches the researches on the effect of policy implementation.Secondly,this paper explores the causes of the change in the subscription behavior of new shares before and after the regulation of the full prepayment of new shares.We find that the liquidity pressure fund management companies faced during the process of new shares subscription have a significant impact.However,due to the author's ability and the limitations of research time,this paper mainly studies the impact of the new prepayment system on the fairness of the new shares issued,and the impact of the institutional changes on the investor structure and holding time of new shares are not explored.