High IPO price of stocks in small- and medium-sized board and second board market

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In China, one of the main purposes of the reform in October 2010 is to reduce the price earnings ratio of initial public offerings (IPO) in small- and medium-sized board and second board market according to totally market-oriented rules, however the effect is not obvious. Focusing on this problem, the authors found that the IPO price earnings ratio stays high while relative inquiries tend to be rationalized after the reform. Therefore, two models were developed i.e., the return analysis model of participation in IPO allocation and the simulation analysis model of relationship between the over-subscription rate and IPO price earnings ratio. Analyses show that the regulation reasons resulting in the high IPO price lie in the insufficiency of inquiry restrictions and the deficiency of pricing restrictions on the basis of the two models. Reform methods are elaborated to strengthen inquiry restrictions by increasing inquiry institutions' cost of quoting high price and pricing ones by increasing managing underwriters' risks resulting from the high IPO price earnings ratio.

Keywords initial public offerings high price earnings ratio inquiry pricing

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Issue Date: 15 March 2014

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	Le LI
	Huiying LUO
	Zhishu YANG

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Le LI,Huiying LUO,Zhishu YANG. High IPO price of stocks in small- and medium-sized board and second board market[J]. Journal of Tsinghua University(Science and Technology), 2014, 54(3): 394-401.

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http://jst.tsinghuajournals.com/EN/ OR http://jst.tsinghuajournals.com/EN/Y2014/V54/I3/394

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