墨尔本大学作业assignment指导范文部分节选

 

Abstract：摘要

 

IPO underpricing is a common phenomenon both in developed and developing countries. China stock markets have their own characteristics, which make IPOs in the market have some particular disciplinary. China has the highest level of initial returns of IPOs in the world in the 1990s though it moved down through time. This paper investigates the evolution of China's IPO allocation mechanisms and finds the regulatory changes affect the underpricing level in China’s IPO market primarily. We find that Chinese IPO underpricing is principally caused by government intervention with IPO pricing regulations and the control of IPO share supplies.

 

1 Introduction引言

 

All firms need to raise money to finance new project, expand operations and promote the economic growth. IPO is the best way to raise capital quickly. IPO underpricing, or high IPO initial return, is a phenomenon common to most stock markets, both in developed and emerging economies. But the IPO underprice in China is really unique. By the end of 2010, the first-day return is 40.4% , even though it is much lower than 1990s, the ratio is still higher than other countries, especially for developed countries which have a mature capital market. Why the difference happens in Chinese primary market?

 

Many empirical studies have focus on the extremely high initial returns in China. China has experienced rapid economic change in recent 30 years and the stock market has become the second largest market in Asia. After a major economic reform, the initial rate of return has decreased significantly after 1992. In this paper, the objectives are to summarize the reasons why China IPO are underpricing，especially for the reasons that regulatory changes affect the underpricing， and point out some suggestion for the regulator, individual investors and institutional investors.

 

The rest of the paper is organized as follows: Section 2 introduces the China’s stock markets and IPO; Section 3 talks about some theory explanation of IPO underpricing; section 4 shows some regulatory changes in China stock IPO; Section 5 explain some data and methodology; section 6 analysis of how regulatory changes affect IPO underpricing and concludes some other factors; section 7 make a conclusion of the whole paper.

 

2 Introduction of China’s stock market中国股票市场介绍

 

2.1 Introduction to China’s stock market

 

China’s stock markets opened at the beginning of the 1990s and then became the second largest in Asia with a rapid economies increase. There are two stock exchanges in China including the Shanghai Securities Exchange (SSE) and the Shenzhen Stock Exchange (SZSE), founded in December 1990 and April 1991, respectively. After some economics reforming, the China economy is transforming from a centrally planned system to a market-oriental system. However, the Chinese government still keeping some socialist characteristics that make the China stock market and IPO process special. For example, firstly, the government as an important role in the stock market which intervenes the market frequently, then, unlike the most of western and developed countries use the book-building method, the China stock market use the fixed-P/E ratio to determine the issue price in the early years and specially, some international investors cannot invest in China A -share market.

 

There are six types of shares in China: (1) government shares (2) state legal person shares, which are held by other state owned enterprise (SOEs), (3) legal person shares, which are held by non-state owned institutions, holding companies or enterprises; (4) employee shares, which are held by managers and employees; (5) ordinary domestic individual shares (or A shares), which can be purchased only by Chinese citizens of the PRC on the Shanghai Securities or the Shenzhen Stock Exchange; and (6) foreign shares, which can be purchased only by foreign investors in Mainland China (B share), in Hong Kong (H share), or on the NYSE (N share). Only A shares and B shares are listed on the Shanghai Securities and Shenzhen Stock Exchanges. The first four types of shares are called non-tradable shares and used to prohibit floating in the official exchanges, although employee shares are allowed listing 3 years after the IPO.

 

2.2 Institutional features of China’s Stock Market and IPO Underpricing

 

The main characteristic in China is the government as an important role in attempting and monitoring the stock markets. The government intervention is including the control of IPO offering timing, offering price and the method and pricing. These interventional strategies are produced to control the flux on the securities market for avoiding crises and keep the market stable. Secondly, before 2001, the China Securities Regulatory Commission (CSRC) determines the number of shares to be issued every year. But in 2001, the CSRC shifted from the quota system to a new system, which give the right to investment banks to recommend firms for offering. Unlike the US, IPO is a decision made by corporate, in China these are made on the political considerations. Thirdly, the offering mechanism adopted in mature stock markets is really different from most Chinese firms. Almost developed countries use the book-building method while in the early 1990s China stock market chooses the fixed P/E ratio method. So that the offer price must be within the regulator’s pricing range. Last but not the least, the stock market shows immaturity is another characteristic, which shows in the accounting report, market regulatory system and auditing standards.

 

4. Regulatory changes affect IPO underpricing in China

4.1 The evolution of China's IPO allocation mechanisms
4.1.1 Fixed price IPO allocation
4.1.2 Book-building IPO allocation
4.2 Regulations of the Chinese primary market

5. Data description and methodology
5.1 Data description
5.2 Methodology
5.2.1 Underpricing Measurement

6 Analysis

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