Research on IPO Underpricing Decomposition: Evidence from China's Science and Technology Innovation Board

Abstract

The study focuses on the phenomenon of initial public offering (IPO) underpricing in China's Science and Technology Innovation Board (STAR market). The study employs the stochastic frontier model to analyze IPO underpricing and decomposes it into two components: primary market underpricing and secondary market premium. Additionally, the research investigates the impact of research and development (R&D) investment on IPO underpricing. The empirical analysis is based on a sample of 480 companies listed on the STAR market between July 2019 and January 2023. The results reveal that IPO underpricing on the STAR market is substantial, with an average underpricing rate of 131.81%. The primary market underpricing component contributes 4.24% to the overall underpricing rate, while the secondary market premium accounts for the remaining 95.76%. Furthermore, the study explores various factors that influence the secondary market premium using multiple linear regression analysis. The findings indicate that variables such as issuance volume, underwriting fee, turnover rate, and R&D investment significantly impact the secondary market premium.