IPO First-day Price Limit And Underpricing

IPO underpricing refers to the transaction price of newly listed shares higher than the issue price.IPO underpricing phenomenon is common in global stock markets,but compared to developed countries and even some developing country stock markets,the IPO phenomenon in China's stock market is particularly serious.IPO underpricing seriously affects the normal trading order of the stock market,which is not conducive to the effective allocation of stock market to resources.In December 2013,the Shanghai and Shenzhen Stock Exchanges issued notices to improve the trading mechanism for the first day of IPO listing to curb the stock price and the irrational speculation of malicious speculation.The notice stipulates that since January 2014,the Shanghai and Shenzhen Stock Exchanges will implement the first-day limit price increase and decrease policy for new shares,that is,the maximum increase in share price on the first day of IPO listing shall not exceed 44%of the issue price,and the maximum decline shall not be less than 36%of the issue price.The implementation of this policy for four years has alleviated the problem of the sharp fluctuation of new shares' stock prices on the first day,but this has also triggered the phenomenon of"continuous limit-up" for consecutive days after the first day of IPO listing.Therefore,whether the implementation of this policy has really played a role in mitigating the IPO underpricing and stabilizing the stock market has yet to be further analyzed.At present,there are few researches on this issue at home and abroad,and the research conclusions are not the same.In this context,the research on this issue has theoretical and practical significance.First of all,this paper analyzes the basic situation of the new shares,such as new shares' price movements on the first day of IPO,the cumulative increase and the cumulative number of days during the "continuous limit-up".The relevant literature on the IPO underpricing theory at home and abroad and the effect of first-day limit price increase and decrease policy on IPO underpricing were collated and reviewed.Secondly,in this paper,the stocks of A shares and the GEM Markets were selected from August 2010 to December 2016,a total of 1152 stocks were used as research samples.This paper uses a multiple regression model to empirically analyze the policy effect of first-day limit price increase and decrease policy on IPO underpricing,and uses the propensity score matching model to test the result to avoid multiple regression analysis from the selection bias and endogenous problems,the robustness of the results was tested using the bias-corrected matching estimator method.The reasons for the difference in the IPO underpricing rate before and after the 2014 New Policy were analyzed using multiple regression models.The robustness of the results was tested by using the bias-corrected matching estimator method.Furthermore,a multiple regression model was used to analyze the causes of the difference in IPO underpricing rates before and after the 2014 New Policy.Finally,we get the following conclusions:(1)Multiple regression analysis finds that after controlling the indicators that have a significant impact on the IPO underpricing rate,the implementation of the New Policy in 2014 still significantly increased the IPO underpricing level and exacerbated the stock price volatility of new stocks;In the grouping of the Main Board and the Growth Enterprise Market,the 2014 New Policy still led to a significant increase in the IPO underpricing rate;(2)The propensity score matching analysis results show that the 2014 New Policy had a significant positive impact on the IPO underpricing level both before and after the sample match.In addition,after the sample matching,the average effect of the New Policy's impact on the IPO underpricing rate declined slightly,indicating that the adoption of OLS regression analysis may overestimate the positive impact of the 2014 New Policy on the IPO underpricing rate.Moreover,the results of robustness test by using bias-corrected match estimators are the same;(3)The multiple regression found that the investors' chase limit and the market manipulation behavior of the dealer's capped limit combined to cause the IPO underpricing rate after the 2014 New Policy to be significantly higher than the IPO underpricing rate before the implementation of the New Policy.Therefore,this paper suggests that the authorities should conduct appropriate supervision based on market orientation,establish and improve information disclosure mechanism of listed companies,and market should further strengthen the cultivation of rational investors.