IPO underpricing in GEM (Growth Enterprise Market) and its influencing factors in China’s stock markets

The dissertation explores IPO underpricing in China's growth enterprise market (GEM). On the basis of current research at home and abroad, the dissertation selects updated data according to Chinese conditions. Since there is no independent analysis of IPO underpricing of GEM, the dissertation compares Shanghai main board market (MBM) and Shenzhen small and medium enterprise board market (SME) to probe into the IPO underpricing of China's GEM and its influencing factors. In order to understand the current condition of IPO underpricing in China's GEM, the dissertation looks into the latest market data. Based on statistical analysis, the dissertation compares IPO underpricing in main board market and in small and medium enterprise board as well as the GEM in China. It turns out that in the first day of issuance, there is high degree of underpricing in these three boards. The IPO underpricing rate of GEM board is quite different from that of the main board market, but similar to that of the small and medium enterprise board. The average IPO underpricing rate in the GEM in China is 40.5%, far more than that of the main board market of 43.7%, with the volatility of average underpricing rate larger than that of the main board market. Besides, IPO underpricing level, IPO underpricing rate in different industries and IPO underpricing rate in different years are compared. It turns out the a new stock’ underpricing degree in China’s GEM occupies the largest proportion among the three boards (the underpricing rate is over 20%). In order to probe into reasons for high underpricing rate, the dissertation compares data from the GEM with the main board and small and medium enterprise board respectively. Combined with features of growth enterprise market, on the basis of hypotheses, the dissertation adopts multiple linear regression model for empirical studies, with variables including investor behaviour, market heat, information asymmetry and corporate growth chosen to explore factors that influence IPO underpricing in GEM. In order to avoid multi-collinearity, SPSS is used to verify all variables in the course of building models. On the basis, to solve the multi-collinearity, stepwise regression is used for multiple regression. In the end, to enhance the model effectiveness, test for heteroscedasticity and related processing are done. Through empirical studies, the dissertation reaches the following conclusions. First, in China, compared to the main board market, the IPO underpricing of GEM is more severe. In recent years, the underpricing rate shows a decreasing trend. The overall IPO underpricing rate of GEM is quite different from that in the main board, but similar to that in the small and medium enterprise board. The average underpricing rate of GEM is far more than that in the main board, with volatility also higher than that in the main board market. Through the analysis on changes of IPO underpricing rate in different years, it is found that the trend of IPO underpricing rate is similar in three markets. However, in 2012, the IPO underpricing rate of GEM is larger than that in the main board market. In the wake of the reformed issuing system, the IPO underpricing rate of GEM in China shows a decreasing trend year by year. Second, high IPO underpricing in the China’s GEM mainly attributes to investor behaviour. The regression analysis on the GEM shows that the turnover rate and the lot winning rate of IPO exert prominent influence on underpricing, which explains the following problems. In China’s GEM, speculation prevails, while supervisory institutions do not function well. Investor irrationality is fully displayed in the secondary capital market, especially in the GEM. Third, market heat also exerts prominent influence on the high IPO underpricing in this market, which not only reflect the overall trend of market return, but also predict investors’ confidence in the market. With heated market, the herd effect will promote the transaction price of IPO, which leads to high IPO underpricing. Fourth, another important influential factor of high IPO underpricing in this market is information asymmetry. Empirical studies show that information asymmetry in securities market in China widely influences IPO underpricing. For GEM listed companies in China, if a new stock have been issued for a long time, their uncertainty would get higher. As a result, information asymmetry will be more severe alongside higher IPO underpricing. Therefore, currently an urgent problem in the growth enterprise market in China is to improve information disclosure system. Fifth, research results show that Chinese investors do not pay much attention to analysing fundamentals of listed companies. As the growth indicators of IPO underpricing in GEM, main board and small and medium enterprise board are not prominent, currently in China, investors do not make choices based on their understanding of fundamentals of a company, but mostly speculate irrationally. This dissertation is pioneering in the following aspects. First, in terms of research methods, the dissertation combines the features of GEM and compares three markets to look into IPO underpricing of GEM and its influential factors. Second, in terms of data selection, the time span of samples is from October 2012 to December 2017, which not only updates data, but also expands the sample volume, making the research results more effective chronologically with stronger persuasiveness. Third, in terms of analysing influential factors of IPO underpricing, on the basis of previous research, the dissertation has concrete analysis on each type rather than roughly carrying out analysis, by building an indicator system that has a wide coverage with more factors included