IPO underpricing in China Studies357.doc

ipo underpricing in china studiesabstract: the initial public offering of shares of the company is held by a minority shareholding to the public, an important step in transformation. this paper analyzes the status quo of chinas ipo system and the existing problems, summed up ipo underpricing response. keywords: stock market ipo ipo underpricing 0 introduction the stock market is the demand for funds by issuing direct access to capital markets, which occupies an important position in the stock market. as chinas listed companies increases every year, the stock issuance market is also developing continuously improved, but compared with mature markets with international there are still many issues that must be perfect, this ipo underpricing on the issues related to exploration. 1 ipo underpricing overview ipo, the initial public offering, is the initial public offering, while the ipo underpricing is underpricing (initial public offering underpricing), ji zhi initial public offering of new shares when the price low, but the first day of trading in the stock when the higher prices, investors subscribe for new shares to obtain the excess return of a phenomenon. ipo underpricing problem is very complex, have yet to form a unified understanding of the world from a different angle scholars try to explain the ipo underpricing behavior, mainly include: winners curse hypothesis, with the trend hypothesis, the signal hypothesis, a speculative bubble hypothesis, market sentiment hypothesis, the hypothesis and so the reputation of investment banks. these are western scholars in the developed capitalist countries on the basis of mature capital markets study concluded that in foreign countries to obtain the corresponding empirical research support, and distribution and pricing on the stock is chinas stock market and the stock of other countries a fundamental difference between the market can not be divorced from the fundamental problem to study the chinese stock market. 2 ipo underpricing to explore the reasons for 2.1 system, the status quo of chinas ipo of chinas ipo issuance processes include the issuance of securities for approval before the preparation, application documents submitted by issuers, securities issued by the approval, implementation of the four stages of distribution. new shares issued in the trial process, generally through the department of china securities regulatory commission issued the first instance and distribution of the audit committee review, was adopted to allow public offering. upon completion of share-trading reform, china has launched a series of pre-trial aimed at improving the efficiency of matching policies issued, ipo, said the new deal. since the implementation of the new deal since the ipo of smes has been issued to improve the efficiency of the audit, the financial condition of issuing and listing more specific, the sponsor even greater responsibility, and also abolished the one-year period and the interval of one year to counseling financing requirements, the implementation of more for market-oriented distribution and pricing methods, thus greatly reducing the release time to market. but, the international capital markets compared to countries with relatively mature, chinas new stock issuance system still does not meet the growing financing needs of smes, a variety of new shares issued under the system itself increasingly constrained chinas capital market development. 2.2 ipo system problems 2.2.1 audit and less efficient issuance of new shares due to chinas distribution system is the approval system implemented, new shares issued by the sfc audit is mainly consists of the fa shenwei gatekeeper. but the companies listed, and then when they found that companies in question has nothing to do with the fashen wei. also, because fashen wei mainly sfc is responsible for, in order to avoid pre-trial session in the hair problems, fashen wei members can only audit procedure to ensure the legal compliance audit, which resulted in low efficiency. 2.2.2 ipo market-oriented pricing mechanisms are inadequate at present, chinas capital markets and the market is not fully embarked on the road, the issuance of new shares audit, the listed price is also not completely the introduction of market mechanisms, resulting in a frantic additional well in the market, expansion, market downturn, while others simply stop off ipo hair trial. moreover, the administrative status of a mandatory intervention significantly constrain the development of chinas capital markets, leading to our market-oriented operation is only in the verbal level. 2.2.3 hit new speculative mentality led to the high ipo underpricing of ipo pre-reform system, often creating the myth of new shares undefeated in 2007, new shares online subscription rate of return close to 20% in the downturn in 2008 is also close to 4%, the first day of ipo little break, playing new money into the stock market to ensure the safety of an investment approach. 2009 restart ipo, the market is still a strong feeling of speculation, excessive speculation in the secondary market stocks expected, the abuse of dynamic price-earnings ratio, coupled with excess liquidity, so that the secondary market price-earnings ratio remains high, loss of rationality, although super - of large capitalization stocks with low price-earnings ratio down the average market price-earnings ratio, but can not suppress peoples feeling of speculation, the high price-earnings ratio of small-cap stocks, recently listed on the gem board price-earnings ratio is far beyond the reach hundreds of times above the reference to these indicators of excessive speculation in , so that the secondary market for ipo ipo valuation is higher than the price of the serious, resulting in relatively high ipo underpricing. reposted elsewhere in the paper for free download http:/ according to statistics, in 2007 the domestic a shares were issued 120 new shares, with an average issue price-earnings ratio of 29.9 times; in 2008 were issued 76 new shares, with an average price-earnings ratio of 26.84 times the issue. in 2009, the first 6 months of an average circulation of up to 39.05 times earnings. although it looks in 2009 under the influence of the new deal in the issuance of new shares issued in price-earnings ratio above the average level, but high valuations in the market under the premise that investors are still keen to play the new, its power is undoubtedly a low-risk and past ipo high-yield characteristics. as long as chinas securities market is still in an atmosphere of speculation and hype, the high rate of the phenomenon of underpricing can not be simply eliminated, chinas stock market value investing is difficult to enter the right track. ipo underpricing of chinas three policy proposals issued 3.1 is necessary to strengthen the capital market system construction due to lack of capital market system, investors can not hedge and other technical operations profit, resulting in the stock can only go up not down rigid movements, forming the stock market bubble, but also created new shares at the same time high underpricing. therefore, strengthening the capital market system construction, to implement a new policy conducive to market stability is a final settlement of new issues underpricing is all about. 3.2 to further improve the system shares the high ipo underpricing for two reasons: first, the issue price may seriously underestimate the value of the company; second is due to excessive speculation or market manipulation. so, first need to market-oriented, diversified mechanism for issuing new shares. this stage, china should take consistent with international practice, chinas stock market has its own characteristics with the diversity of the ipo pricing, distribution methods to ensure the fairness and efficiency of the market. from the distribution method on: the distribution of some small-cap stocks can still be used the internet pricing issue, to the secondary market investors, placement and on-line public offering of a combination of distribution methods; right part of the issue of large-cap stocks by retail investors as far as possible to adopt internet distribution and on the legal issue of placing a combination approach; the conditions are ripe, you can also consider using internet auction distribution methods. from the pricing perspective: this is not the implementation of a fully open market-oriented pricing system should be restricted in the initial stages of the cumulative selection of tenders and investors in general level of awareness of market-oriented distribution and institutional investors constantly improve the quantity and quality of continuously improve the situation, allowing the basic stock market opened, the rmb under capital can move freely, when a larger proportion of international investors to consider taking on the hong kong market, offering hybrid models currently in use. ipo underpricing to promote a high rate of horizontal swinging back. second, we should further improve the mechanism of institutional inquiry, research shows that in the implementation of the inquiry system, the new shares ipo price closer to market prices. from the ipo pricing efficiency is concerned, the inquiry system, under the conditions of ipo pricing markedly improved the efficiency of information transmission efficiency has also been noticeably enhanced, and new shares the price discovery function has been optimized, market factors, industry characteristics, operational risks and other information can also be quickly integration into the pricing system so that new stock price more reasonable. 3.3 improve the information disclosure system of listed companies from the information economics point of view, the market information asymmetry is the ipo underpricing in the most fundamental reason. if a country or region of the low level of market development, then the transparency of the market will be worse of information between different investors also will be more obvious differences, ipos underpricing the higher the rate. from the perspective of ipo issuers, listed companies and sponsor agencies should strengthen their communication with institutional investors and strengthening of new shares issued to promote the work of listed companies and investors to reduce the information asymmetry between the degree of ipo shares priced so as to enhance the process of the companys ability to penetrate the relevant information to enhance the efficiency of information transmission and the efficiency of ipo pricing. 3.4 to vigorously develop the capital market to address the imbalance between supply and demand in china, due to loose monetary policy, the market formed a very strong liquidity, so it should develop and establish a multi-level, diversified capital markets, introduce new financial products so that investors have a good investment channels, to promote a rational stock price return, and thus alleviate the imbalance between supply and demand of capital markets. 3.5 promote rational investment, a reasonable guide the investment behavior of the market in our stock market, driven by speculative funds ipo underpricing is caused by a high rate of important reasons. at present, chinas securities market-tradable share reform has gradually seen the results before the stock market troubled by the many institutional problems