IPO price determination in Chinese growth enterprise

Abstract

After more than 20 years of development, China’s capital markets are not yet mature. In order to guide the reform of mature market, the study on the IPO price determination in GEM is necessary. We employ the factor analysis and multiple regression to analyze the issue of IPO pricing on Chinese GEM. Through factor analysis, five factors are extracted which reflect the companies’ intrinsic value. The result of the regression shows that IPO pricing of Chinese GEM is fair. We verify the nonexistence of behavior which lowers the offering price by underwriter. By way of excluding the irrational pricing hypothesis, we conduct the analysis of the IPO underpricing depending on the external factors. The result proves that the market expectation and speculation from investors affect the IPO underpricing most.