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IPO Underpricing In China我国IPO抑价分析
Abstract：摘要
IPO underpricing is a common phenomenon both in developed and developing countries.无论是在发达国家和发展中国家， IPO抑价都只是一个普遍的现象。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.我们发现，中国IPO抑价主要是通过政府干预来实现的，IPO定价首次公开在售股之前，而且都是需要通过购物资进行控制的法规来进行调控的。
Introduction介绍
All firms need to raise money to finance new project, expand operations and promote the economic growth. 所有公司需要筹集资金，以资助新项目，并扩大业务和促进经济增长。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%[Average First-day Returns and Volume, by Year, for Hong Kong, Germany, Italy, Japan, Korea, the UK, the US, China, Singapore, France, Australia, and Canada. Jay R. Ritter, University of Florida, 5,2011], 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? http://www.ukassignment.org/uklunwen/
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. 许多实证研究都集中在中国非常高的初始回报这个问题上。近30年来，中国经历了快速的经济变化和股市变化，并已成为亚洲的第二大市场。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.
本文其余部分安排如下：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.
Introduction of China’s stock market中国股市简介
China’s stock markets opened at the beginning of the 1990s and then became the second largest in Asia with a rapid economies increase. 中国的股市在20世纪90年代开始开盘，然后成为世界在亚洲的第二大经济快速增长体。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.[ Yangqi Wang,Jin Wang, Empirical investigation of IPO underpricing in China,2001-2005]
Institutional features of China’s Stock Market and IPO Underpricing 中国的股市和IPO抑价的制度特征
The main characteristic in China is the government as an important role in attempting and monitoring the stock markets. 在中国的主要特点是，政府试图监测股市，并在其中扮演了重要的角色。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.
Theory explanations on IPO UnderpricingIPO抑价的理论解释
Theories Focusing on Asymmetric information 信息不对称理论
Winner’s curse赢者的诅咒
One of the main models for asymmetric information is winner’s curse problem, which is introduced by Kevin Rock in 1986. In his theory, he says the investors are clarified of informed and uninformed, informed investor buy shares only when an issue is mispriced so that they can make a profit by the low price. But uninformed investors do not know which issue is underpriced so they maybe allocated all of the least desirable new issues to diver the risk, the new issues which are underpriced enough to compensate for the risk will be accepted only.
3.1Theories Focusing on symmetric Information
The main model is lawsuit avoidance. 主要模式是避免诉讼Someone agree that IPO underpricing can reduce the frequency of future lawsuits in the later years; it is because those investors who lose money will make a lawsuit. But someone holds the opinion against that theory. Drake and Vet Suypens (1993) make a conclusion that lower underpricing did not protect them from being sued. We can use the China stock market as an example to explain clearly, In China, lawsuit avoidance is not the main reason for underpricing. As we all know, the government plays a crucial role in market that owns at least 50% of the shares in most IPOs, so the control are not play a meaningful role
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