Performance of IPOs on Chinext
Chapter1 Introduction
1. Background
Initial public offerings refer to the process in which an enterprise issues shares to investors for the first time in a stock exchange in order to raise the funds needed for the development of an enterprise. IPO plays an important role the development of enterprises in the future. Raising funds can not only attract investors to enhance stock liquidity, but also improve corporate reputation and employee responsibility to the improve enterprise system and standardized management.
GEM (growth enterprises market board) is a second board securities market which is inferior to the main board market. GEM has great differences from the main board market in regulatory system, information disclosure, trader conditions, investment risk and so on. The main objective of GEM is to support small and medium enterprises and establish mechanism for venture capital and venture capital companies to contribute to the construction of multi-level capital market system. China’s GEM was public as a second board market inferior to main board stock market in October 30, 2009. China’s GEM is still in the exploratory stag and has plenty of problems that appeared in other countries. It is very necessary to study in GEM’s IPO in various aspects and solve the problems faced by the GEM.
Since that GEM market is relatively easy to enter compared with the main board market, attention should be put on the performance of IPO after the company was published in GEM board. It is necessary to be studied further whether the company will grow sustainably after gaining fund in the capital market or the enterprise will perform poorly because it cannot adjust its system to the capital resources.
2. Research value
1） Academic value
This essay chooses the current popular problem as topic to study. Although most of Chinese companies on the GEM board keep growing after listing IPO, some listed enterprises still exist significant decling.
The academic value of this dissertation is to improve the research about the performance of IPO in China’s domestic capital market. In addition, this article summarizes the domestic and foreign scholars researches on the market performance and improves the researches on domestic capital market.
2） Practical value
The theoretical value of this essay is to explore the factors that influence the performance of IPO on Chinese GEM and manage the IPO price mechanism, control the listing of enterprises, protect the interests of investors and ensure the sustainable development of the growth enterprises market board.
3. Structure arrangement
This paper is divided into five parts. The first part is introduction, which introduces the background and significance of this topic to the research on the performance of the gem and provides a theoretical reference for the newly started GEM board. The second part is Literature Review, which summarizes the home and abroad researches on the performances of IPO. It is necessary to study previous academic researches because it can not only avoid repeated research, but also help to find the innovation of the research. The third part is the establishment of model to study about the performance of IPO on Chinese GEM. This chapter connects research background and literature review and combines with the current situation and characteristics of the GEM to and analyze the existing related research. The fourth part is empirical analysis, which is based on the model and data in the third part to have empirical analysis on the performance of IPO on Chinese GEM. The fifth part is summary and prospect, which sums up the research of this paper and get some enlightenment to give some suggestions on the basis of the conclusion.
4. Innovation
由于我国创业板市场成立时间较短，相关研究还很少，而且其自身存在很多明显区别于主板市场的特征，在借鉴已有研究的基础上，结合创业板特殊性，本文在理论上有所突破。
Due to the GEM market in China set up a short time, the related research is very few, and its many features are obviously different from the motherboard market, based on the existing research, combined with the particularity of the gem, the breakthrough in theory.
Chapter2 Literature Review
2.1International evidence on IPO long-term stock performance
Curly and Stoll (1970) were the first two scholars who studied about the long-term return of IPO, who selected the small company stock in American capital market and investigated 205 stocks as samples and found that short-term returns of new shares have high rate but performance poorly in the long term. Aggarwal and Rivoli (1990) used market index (NASDAQ index) adjustment method and ratio method to study in the long-term performance of IPO and found that the return on 250 trading days after the listing of new shares to investors to buy and hold was 13.7%. Ritter based on the US IPO stock to find that the return on new shares was 83% of the benchmark yield in the first three years. He regarded the benchmark yield as the average earning level of an undisclosed company. It was found out that we find new shares are generally weak in the long run after studying in a large number of empirical studies. Work earlier conducted by Aggarwal and Rivoli (1990) yield underperformance based on post issue 250 trading days (one year) period as well.Rock based on asymmetry information theory to put forward the “winner’s Curse” model and believe that the issuers tend to offer a low price for new shares in the primary market in order to compensate investment losses caused by the lack of information.
2.2 Chinese evidence on IPO long-term stock performance
In China, Chunfeng Wang and Jianchun Luo (2002) took 165 stocks listed in the Shanghai and Shenzhen Stock Exchange between 1997 and 1998 as the samples and used the average abnormal return and cumulative abnormal return model to discover that the return of IPO is lower than the market level in the first two years, but the performance is not significant.
Chinese scholars have different opinions on the long-term performance of IPO: some scholars believe that IPO is weak for a long-term, some scholars hold the opposite opinion. Juntao Du, Xiaohua Zhou and Xiutai Yang (2003) in took 71 shares which were listed on the Shanghai Stock Exchange for the first time to study their long-term benefit performance for five years. The results showed that new shares have weak performance and the samples they studied perform weakly for five years. Yunwei Li, Jun Song and Congfeng Wu (2002) selected 542 stocks listed in 1994-1997 as the sample and the empirical results show that excess returns are negative for 28 months in three years. In addition, the accumulative weighted excess returns were22.85% in three years.
However, there are some scholars hold the opposite believes. Meijin Wang, Song Zhang (2000) selected 110 stocks issued in Shanghai stock exchange as the sample, which were listed between January 1996 and September 1997. The research shows that there are three stages for stocks to keep growing. The first stage is in six months, during which the return yields is weaker than the average level of the market. The second stage is between six months to one year, in which the rate of return fluctuates but is stronger than the market. The third stage is one year after the listing, the rate of return was stronger than the market.
Chapter 3 Proposed methodology