Investigating the Effectiveness of Issue Pricing in China by the Underpricing of IPO in SMEs

Abstract

For analyzing China SMEs board's high under pricing level, which mean value is 101.28%. This research has chosen a sample that contains the IPO 1 's information of the listed companies in China's SMEs2 I. INTROUCTION board, from June 2006 until August 2010. Using the principal component analysis, we regress the issue price to examine the effectiveness of China's issue pricing system. Our research suggests that the issue price can reflect the company's intrinsic value well, the primary cause for the under pricing is the high price in the second market. As the volatility in the SMEs board, the reflection of the first closing price on company's value is rather weak. China's issue pricing system gets a great improvement in the efficiency than before but still has some shortages. So, how to improve the availability of price in secondary market is the major method for us to solve the high under pricing level in our stock market.