A Research on the Influence of IPO Under-Pricing of Small and Medium Enterprises(SMES) Board
|School||Southwestern University of Finance and Economics|
|Keywords||IPO underpricing Small and Medium Enterprises(SMES) board Behavioral finance Investor sentiment|
IPO underpricing is one of the three financial visions in the process of issuing and listing. The so-called IPO underpricing, generally refer to the IPO pricing is significantly lower than the price of secondary market. Foreign academic circles for IPPO underpricing phenomenon have been going on for half a century, different professors have different opinions about this phenomenon.Traditional underpricing theory is based on the efficient markets hypothesis (EMH). Issuers and companies reduce the price of stock to make the investors to benefit. These investors who hold stocks face uncertainty and provide real demand information to the issuers and companies. But this theory is defective, it cannot provide a reasonable explanation about the phenomenon of the IPO hot market and the long run underperformance. Therefore, Ritter and Welch put forward the PO underpricing direction which should be transferred to the field of behavioral finance.Behavioral finance which break the hypothesis of the traditional theory of underpricing provide a broader perspective for the study of IPO underpricing. Associated with the development of behavioral finance, such as speculative bubble hypothesis, differences of opinion hypothesis, positive feedback trading theory, information cascade hypothesis, these theories and hypothesis are used to IPO research areas. In the long term, the use of behavioral finance theory will be the mainstream of the follow-up study.This paper is based on China’s Shenzhen small and medium enterprises (SMES) board, expanding from both primary and secondary markets. Primary market:Based on the theory of asymmetric information, I study the relationship between the value of the company, institutional investors and IPO underpricing. Secondary market:Based on positive feedback traders hypothesis and information cascade hypothesis, I study the relationship between the investor sentiment and IPO underpricing. I find that IPO underpricing sequences exist multi-period lagged effect. I hope I can comprehensively show the root of China’s IPO underpricing phenomenon.Main contentThis paper can be divided into six parts:Chapter1:Introduction. This chapter includes:the background and significance of the research, the ideas and methods of the paper and the main contribution.Chapter2:Literature review. This chapter can be divided into two parts: asymmetric information theory and behavioral finance theory. Because of special institutional background and the actual situation, foreign underpricing theories are not proved by the empirical results in China. The scholars have to propose underpricing theory with Chinese characteristics.Chapter3:The overview of small and medium enterprises (SMES) board.This chapter introduced the overview of small and medium enterprises (SMES) board in China, such as geographical distribution, industry sectors and other basic conditions. In order to reduce the risk, the CSRC issued a special transactions and regulatory system for small and medium enterprises (SMES) board.Chapter4:An Empirical Study on IPO underpricing of SMES board. Chapter4is the main part of this paper. I make the empirical research by using descriptive statistics and establishing a regression model. This chapter display every steps from selecting variables、building the model and analysing the results, the empirical research shows that the factors which affect the IPO underpricing of SMES board significantly are:previous IPO underpricing level、turnover on the first trading day、market rate of return、the company’s total assets and the number of institutional investors.The results reveal that investor sentiment is the main cause of high IPO underpricing in small and medium enterprises (SMES) board.Chapter5:The lagged effect of IPO underpricing. We find that the sequence of IPO underpricing exist the lagged effects. This conclusion tells us if we want to control the IPO underpricing, we have a lot of work to do.Chapter6:The" main conclusions and policy recommendations. The CRSC should arrange the order of listed companies. The listed companies should improve the level of information disclosure. We should enhance the risk education to investors and establish the information rating agencies.In order to solve the problem of IPO underpricing, we should limit the noise traders in the secondary market and enhance the risk education to investors. As the market is becoming more and more mature, I believe that the problem of IPO underpricing in China will be resolved effectively in future.