VENTURE CAPITAL AND IPO UNDERPRICING IN CHINA

Abstract

The stock pricing problem is a hot topic in the field of investment in China. Many investors, including speculative investors, have great enthusiasm in buying stocks that just finished IPO on the first day. It seems to be a very profitable deal because almost all the issue stock boost to a great extent at the end of the first trade day. However, with the investment strategy of short- wing trading, many investors tend to sell out the stock after a short time. What's more, the slow increase of company profit (E) and the high rate of P/E will result in selling climax. A large percent of the stock price drops off even below the issue price. To regulate the IPO issuing price, the China Securities Regulatory Commission (CSRC)set up a price inquiry system to help determine the price. Venture capital is quite popular in China because of the rapid increase of the economy. Many startups need help not only in the fund-raising part but also in market research, management, and development strategy. More importantly, getting the investment from famous Venture capital companies can bring in an excellent reputation, and invested companies will be considered as a project with a great development prospect and a good investment choice for ordinary investors. Almost all new issuing companies achieved the investment from foreign or local venture capital, will the attendance of venture capital influence the underpricing rate and the earnings yield of the stock is one of the problems we are going to research. Secondly, the underpricing phenomenon of IPO is not every obvious in the stock market of developed countries such as the USA, Japan, and the UK. What caused such a high IPO underpricing rate in China is another topic worthy of research and discussion. Last but not least, the investment strategy and trading mentality of Chinese investors is also a problem we would like to study.