Analysis on the Influencing Factors of IPO Under-pricing on Sci-tech

Innovation Board in China

Guojun Li

Department of Economics, Binhai College of Foreign Affairs of TJFSU, Tianjin, China

Keywords: Sci-Tech Innovation Board, IPO Under-Pricing, Multiple Linear Regression Analysis.

Abstract: The IPO system innovation on the Sci-tech innovation Board has changed from the "approval system" to the

"registration system", which is expected to reduce the degree of IPO under-pricing. This article uses multiple

linear regression analysis to conduct an empirical analysis of the under-pricing of 70 Sci-tech innovation

Board companies listed in 2019. The results show that the under-pricing rate of the Sci-tech innovation Board

is significantly lower than that of the main board and the growth enterprise board. At the same time, factors

such as the scale of fundraising, the listing time, the first-day turnover rate, the reputation of the sponsor, the

issuance PE ratio, and the debt-to-asset ratio have an effect on IPO. Prices have varying degrees of impact.

Finally, based on the results of the empirical analysis, relevant countermeasures such as insisting on and

improving system innovation, normalization of new stock issuance, increasing the rate of successful online

subscription and multi-dimensional improvement of the pricing power of sponsors, etc., are proposed, hoping

to help my country improve the efficiency of the IPO market and reduce speculation so as to promoting the

healthy development of capital market in China.

1 INTRODUCTION

1.1 The Objective of the Work

This paper uses a multiple linear regression model for

empirical analysis, analyzing the scale of financing

(FA), time to market (TTM), first-day turnover ratio

(TR), sponsor reputation (GOS), issuance price-to-

earnings ratio (PE), asset-liability ratio ( ALR) on the

impact of IPO under-pricing. The objective of the

work is to find some factors influencing the high

under-pricing of the Sci-tech innovation Board.

1.2 The Importance of the Objective of

This Thesis

The Sci-tech innovation Board appeared relatively

late, and there are relatively few analyses on the

factors affecting the IPO under-pricing on the Sci-

tech innovation Board, so this article has certain

theoretical and practical significance. According to

the research result, we hope this thesis can provide

some useful references for the pricing of shares

https://orcid.org/0000-0003-0055-1825

issued on the Sci-tech innovation Board under the

registration system of our country in order to

facilitate the long-term development of the Sci-tech

innovation Board market under the registration

system of our country.

1.3 Background

The establishment of the Sci-tech innovation Board is

short and the number of listed stocks is small, so there

are relatively few researches on the IPO under-

pricing of the Sci-tech innovation Board. The

professors in Guizhou University proposed that

factors such as the stock turnover rate on the first day

of IPO listing, issuance scale, winning rate, and the

time interval between the issuance date and the listing

date will have an impact on the under-pricing of the

GEM IPO (Liu 2013, Chen 2013). The professor

the School of Accounting, Zhongnan University of

Economics and Law pointed out that the issuance

price-earnings ratio, issuance scale, circulation ratio,

issuance price, turnover ratio, and first-day price-to-

book ratio are all positively correlated with the excess

return on the first day of IPO (Cheng 2014). Professor

Li, G.

Analysis on the Inﬂuencing Factors of IPO Under-pricing on Sci-tech Innovation Board in China.

DOI: 10.5220/0011308500003437

In Proceedings of the 1st International Conference on Public Management and Big Data Analysis (PMBDA 2021), pages 257-262

ISBN: 978-989-758-589-0

257

of Suzhou University believes that indicators such as

the price-earnings ratio at the time of issuance, the

winning rate, and the reputation of the lead

underwriter have all had varying degrees of impact

on my country's IPO under-pricing (Yu 2015).

Through empirical analysis people believe that the

issuer's timing factors, stock issuance price-earnings

ratio, stock issuance scale, etc. affect the level of

under-pricing of new stocks (Zhao 2007). Wang Yixia

verified the influence of investor sentiment on IPO

under-pricing (Wang 2009). Based on the relevant

research of other scholars, this paper uses regression

analysis to establish a model to analyze the impact of

relevant factors on the first-day premium rate of IPO

on the Sci-tech innovation Board, draws

corresponding conclusions, and puts forward relevant

suggestions.

2 RELATED CONCEPTS

2.1 IPO

IPO (Initial Public Offering), an initial public

offering, refers to a company's initial public offering

of stocks to investors on a stock exchange to raise

funds.

2.2 IPO Under-pricing

IPO under-pricing means that the issue price of new

shares is lower than the market price after listing.

There are usually two expressions of "under-price"

and "premium" for this phenomenon. Under-pricing

belongs to the concept of the primary market. From

the perspective of the issuer, they sell stocks at a price

lower than the intrinsic value of the stock, so it is

called "under-pricing." The "premium" is a secondary

market concept. From the perspective of the

purchaser, the market price of new shares after listing

is usually higher than the subscription price (the issue

price), resulting in additional income, so it is called

"premium." This article uses the first method of

expression.

IPO under-pricing rate, used to measure the

degree of IPO under-pricing, the formula is:

UPR

=(P

1-P

0)/P

0*100% (1)

Among them, UPR

: IPO absolute under-pricing

ratio (UPR, namely Under-Pricing Ratio) of stock i;

0: issue price of stock i; P

1: stock's first-day closing

price.

3 CURRENT SITUATION

ANALYSIS

On July 22, 2019, the first batch of 25 companies on

the Sci-tech innovation Board went public. As of the

close, the stock prices of 25 companies have risen

across the board, with an average under-pricing ratio

of 139.55%. In 2019, a total of 70 companies were

listed on the Sci-tech innovation Board. Among them,

JLWN(688357) broke the issue, becoming the first

SSE STAR company to break the issue on the day of

listing. In addition, there are 35 companies with an

under-pricing rate of 0-100%, and 34 companies with

an under-pricing rate greater than 100%. The average

under-pricing rate is 115.05%, which is lower than

the under-pricing of the main board and Growth

Enterprise Market during the same period. At the

same time, with the increase in the number of listed

companies, the under-pricing rate of the Sci-tech

innovation Board has a gradual downward trend.

IPO under-pricing exists all over the world, and

my country's performance is particularly prominent.

According to statistics, the average under-pricing rate

for IPO in the United States from 2001 to 2009 was

12.1%, the average under-pricing rate in the UK was

16.35%, the average under-pricing rate in France was

less than 5%, and the under-pricing rate in Malaysia

was relatively high, about 80%. The average under-

pricing rate of new stocks in my country from 1990

to 2010 was as high as 137.4% (Gao 2017). The

launch of the Sci-tech innovation Board is expected

to reduce the IPO under-pricing rate of Chinese

companies (Chen 2020). The high rate of under-

pricing of new stocks allows subscribers to obtain

excess returns, enhances the speculative nature of the

stock market, and causes many adverse effects.

Finding the influencing factors of the IPO under-

pricing rate and taking corresponding

countermeasures has very important theoretical and

practical significance.

4 METHODS AND MATERIALS

4.1 Research Method

This article uses SPSS software and EXCEL software

for data statistics, and adopts multiple linear

regression model for empirical analysis.

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4.2 Research Materials

This article analysis 70 companies from the

establishment of the Sci-tech innovation Board to the

listing on December 31

, 2019.

4.3 Index Composition and Research

Hypothesis

4.3.1 Dependent Variable

This article selects the IPO under-pricing rate as the

dependent variable. Adopt the first calculation

formula of IPO absolute under-pricing rate, namely

UPR

=(P

1-P

0)/P

0*100% (2)

4.3.2 Independent Variables and Research

Hypotheses

(1) Funding scale

The financing scale (FA), is expressed by the

natural logarithm of the total amount of funds raised.

Since my country's securities market is still in a

weakly effective market, it is relatively speculative

(Zhu 2018). Generally, the smaller the scale of listed

companies, the more popular they are with investors.

Therefore, the higher the IPO under-pricing rate.

Hypothesis 1: IPO under-pricing rate is negatively

correlated with the size of fundraising (FA).

(2) Circulation Proportion

Circulation Proportion (CP), the calculation

formula is Circulation Proportion=Number of

Circulation Shares/Total Share Capital*100%.

According to the supply theorem, supply is inversely

proportional to price. When the proportion of

outstanding shares is too small, stock prices are more

likely to rise, and the IPO under-pricing rate will be

higher.

Hypothesis 2: The IPO under-pricing rate is

negatively correlated with the circulation ratio (CP).

(3) Time to Market

Time to Market(TTM), is calculated based on the

time distance between the listing year and month and

the establishment of the Sci-tech innovation Board

(July 2019). For example, if listed in July 2019, the

value is 1, and listed in August 2019, then The value

is 2, and so on. The Sci-tech innovation Board is a

newly established board, and the IPO under-pricing

rate of the first batch of 25 listed companies is

significantly higher than that of other listed

companies. However, with the increase in the number

of listed companies, the IPO under-pricing rate is

showing signs of gradual decline.

Hypothesis 3: IPO under-pricing rate is negatively

correlated with time to market (TTM).

(4) Turnover Rate on the first day of listing

Turnover Rate on the first day of listing (TR),

which is the turnover within a certain period of

time/total number of shares issued×100%, which is

used to measure the liquidity of new shares and

reflect the degree of speculative sentiment of

investors. The higher the turnover rate, the more

attractive to investors and the higher the IPO under-

pricing rate.

Hypothesis 4: The IPO under-pricing rate is

positively correlated with the first-day turnover rate

(TR).

(5) The sponsor's reputation

The sponsor's reputation ,GOS (Goodwill of

Sponsor). Investors usually refer to the reputation of

the sponsor when participating in the subscription of

new shares. Practice has proved that the company

sponsored by China International Capital

Corporation Limited (CICC) has a higher meeting

rate. In 2019, 6 of the 70 Sci-tech innovation Board

listed companies have CICC as the sponsor,

accounting for 8.57% of all listed companies. Here,

the reputation of the sponsor is used as a dummy

variable, with CICC being 1 and other sponsors being

Hypothesis 5: The IPO under-pricing rate is

positively correlated with the sponsor's reputation

(GOS).

(6) Issue price-earnings ratio

Issue price-earnings ratio(PE), issue price-

earnings ratio = issue price / net income per share ×

100%. The Sci-tech innovation Board issue price has

cancelled the administrative guidance of 23 times the

price-earnings ratio ceiling and changed to market

pricing. Except for the price-earnings ratio of the 70

listed companies on the Sci-tech innovation Board

(688009), which is 18.80 times, the other 69 listed

companies are all higher than 23 times. Investors

generally believe that a higher price-to-earnings ratio

means better development prospects.

Hypothesis 6: The IPO under-pricing ratio is

positively correlated with the issuance price-earnings

ratio (PE).

(7) Asset Liability Ratio

Asset Liability Ratio(ALR), asset-liability

ratio=total assets/total liabilities*100%, usually used

to measure the long-term solvency of an enterprise.

The higher the asset-liability ratio, the greater the

financial risk of the enterprise. According to the risk-

return principle, high risks require high returns to

compensate. Therefore, we believe that a listed

Analysis on the Inﬂuencing Factors of IPO Under-pricing on Sci-tech Innovation Board in China

259

company with a higher asset-liability ratio will have

a higher IPO under-pricing rate.

Hypothesis 7: The IPO under-pricing rate is

positively correlated with the asset-liability ratio

(ALR).

4.4 Building a Regression Model

UPR=α+β1*FA+β2*CP+β3*TTM+β4*TR+β5*GO

S+β6*PE+β7*ALR+ε (3)

5 EMPIRICAL RESEARCH

5.1 Descriptive Statistics

We use SPSS software in order to calculate the

minimum, maximum, mean and standard deviation of

UPR, FA, CP, TTM, TR, GOS, PE, ALR and other

variables, as shown in Table 1. The data comes from

70 listed companies listed on the Sci-tech innovation

Board

Table 1: Variable descriptive statistics.

N Min. Max. mean Std.

UPR 70 -2.15 400.15 115.05 83.41

FA 70 10.33 13.88 11.26 0.64

CP 70 6.58 23.55 18.37 5.93

TTM 70 1 6 3.40 2.05

GOS 70 0 1 0.09 0.28

PE 70 18.80 467.51 59.01 52.93

ALR 70 0.20 80.53 26.27 17.88

It can be seen from Table 1 that, the average IPO

under-pricing rate (UPR) is 115.05%, the maximum

is 400.15%, and the minimum is -2.15%. The average

value of the circulating ratio (CP) is 18.37%, the

maximum value is 23.55%, and the minimum value

is 6.58%, which accounts for a relatively small

proportion of the total equity. The average time to

market (TTM) is 3.40, the maximum is 6, and the

minimum is 1, indicating that the number of new

shares issued in each month tends to be the same. The

average turnover rate (TR) on the first day of listing

is 75.93%, the maximum is 86.19%, and the

minimum is 57.57%, which is much higher than the

normal turnover rate, reflecting the abnormally high

speculative sentiment of investors and excessive

speculative atmosphere in the secondary market

concentrated. The average issuance price-earnings

ratio (PE) is 59.01 times, the maximum is 467.51

times, and the minimum is 18.80 times. The issuance

price-earnings ratio of the Sci-tech innovation Board

is generally high. The average asset-liability ratio

(ALR) is 26.27%, the maximum is 80.53%, and the

minimum is 0.20%. The overall asset-liability ratio is

relatively low, reflecting the better long-term

solvency of listed companies on the Sci-tech

innovation Board and reducing company operations

Financial risks.

5.2 Regression Analysis of the Model

Based on the above data, we conduct col-linearity test

and regression analysis, and the results are shown in

Table 2.

Table 2: Col-linearity test and regression analysis.

Unstandardized.

Coefficient

T Sig.

Col-linearity

statistics

Std.

Erro

Toler

ance

VIF

308.7 264.9 1.16 0.25

FA -31.39 15.59 -2.01 0.04 0.58 1.72

CP -2.05 1.65 -1.24 0.22 0.60 1.65

TTM -17.82 4.14 -4.30 0.00 0.80 1.23

TR 3.31 1.58 2.09 0.04 0.72 1.37

GOS 60.24 29.90 2.02 0.05 0.81 1.22

PE 0.45 0.15 3.05 0.00 0.94 1.06

ALR -0.96 0.45 -2.16 0.03 0.91 1.09

It can be seen from the col-linearity analysis that

the tolerance (tolerance value) is greater than 0, and

the VIF value is less than 10, and there is no col-

linearity problem.

In the non-standardized period, the scale of

fundraising (FA), time to market (TTM), first-day

turnover rate (TR), sponsorship reputation (GOS),

issuance price-to-earnings ratio (PE), and asset-

liability ratio (ALR) have all passed significant Test

of sex, the circulation ratio (CP) did not pass the test

of significance.

6 CONCLUSIONS

6.1 The Main Points

Based on the data obtained from the above inspection

and analysis, it can be seen that this article uses the

data of the listed companies on the Sci-tech

innovation Board in 2019 as a sample, with the scale

of fundraising (FA), time to market (TTM), and

turnover rate on the first day of listing (TR) ,

Sponsor's reputation (GOS), issuance price-earnings

ratio (PE), asset-liability ratio (ALR) as independent

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variables, the equation established with IPO under-

pricing ratio (UPR) as the dependent variable passed

the test, and the equation is as follows:

UPR=308.743-31.397*FA-

2.050*TTM+3.312*TR+60.243*GOS+0.453*PE-

0.966*ALR+ε (4)

Firstly, the scale of fundraising (FA) is inversely

proportional to the listing under-pricing rate (UPR),

which is consistent with Hypothesis 1, which verifies

that investors in my country's securities market tend

to speculate on small-cap stocks.

Secondly, time to market (TTM) is inversely

proportional to the market under-pricing rate (UPR),

which is consistent with Hypothesis 3. The premium

rate of the first batch of Sci-tech innovation Board

companies listed on July 22 was significantly higher

than the average. As the number of listed companies

increased, the premium rate gradually declined,

reflecting the relatively high speculative nature of the

Sci-tech innovation Board.

Thirdly, he turnover rate (TR) on the first day of

listing is directly proportional to the listing under-

pricing rate (UPR), which is consistent with

Hypothesis 4. The higher the turnover rate on the first

day of listing indicates that IPO applicants do not use

long-term holding as the purpose of subscription, but

obtain short-term income as the motivation, which

fully reflects the characteristics of limited rationality

of individual investors in my country's securities

market (Fang 2016).

Fourthly, the sponsor's reputation (GOS) is

directly proportional to the listing under-pricing rate

(UPR), which is consistent with Hypothesis 5. When

investors apply for new shares, they often refer to the

reputation of their sponsors instead of on the

comprehensive pricing power of the sponsors. This is

also a manifestation of the lack of rationality in the

market.

Fifthly, issuance price-to-earnings ratio (PE) is

directly proportional to the listing under-pricing ratio

(AIR), which is consistent with Hypothesis 6. The

Sci-tech innovation Board was changed to market

pricing, and the 44% limit on the first day of listing

of new shares was removed. The purpose is to reduce

administrative intervention in the IPO, but to a certain

extent, it also caused excessive speculation of new

shares on the Sci-tech innovation Board by

investors. , Enhancing the speculative nature of new

shares subscription on the Sci-tech innovation Board.

Finally, the asset-liability ratio (ALR) is inversely

proportional to the listing under-pricing ratio (UPR),

which is contrary to Hypothesis 7. Facts have proved

that the higher the asset-liability ratio, the lower the

listing under-pricing rate, which violates the principle

of risk return, indicating that IPO applicants have a

low risk appetite and tend to choose listed companies

with lower risks. It also reflects a certain degree of

my country’s securities market. Irrational.

6.2 The Significance of the Work

Based on the empirical results and conclusions of this

article, the following four suggestions are given:

First of all, persist in and improve the innovation

of the Sci-tech innovation Board system. The

supervisory authorities should adhere to the "initial

intention" of the policy, and cannot be swayed by

temporary market anomalies, let alone change the

course easily. Perform cold treatment on the problems

in the Sci-tech innovation Board, find the cause, and

prescribe the right remedy.

Secondly, increase the number of new shares to be

issued, normalize the issuance of new shares, and

reduce the IPO under-pricing rate of new shares. In

the early days of the establishment of the Sci-tech

innovation Board, due to its scarcity, the IPO under-

pricing rate was relatively high. As the number of

listings continues to increase, the under-pricing rate

has a downward trend. Therefore, we have reason to

believe that as the Sci-tech innovation Board cools

down, investors will become more rational.

Thirdly, increase the proportion of online

purchases and restrict the online purchase behavior of

institutional investors. According to the statistics of

new stock subscription data on the Sci-tech

innovation Board in 2019, the number of online

issuance accounted for only 33.96% of the total

number of issuance. Except for one company with a

winning rate of 0.23%, the winning rate of the rest is

0.04%-0.06%, which is obviously low . Only by

increasing the proportion of small and medium-sized

investors winning the lottery can the IPO under-

pricing rate be effectively reduced.

Finally, multi-dimensional evaluation of the

sponsor's pricing ability. There are a total of 28

sponsors behind the 70 listed companies. The top

three investment banks in the number of sponsors are

CITIC Construction Investment, CITIC Securities,

CICC, and GuoXin Securities. And the sponsor

concentration is relatively high. According to the

results of empirical analysis, the IPO under-pricing

rate of listed companies sponsored by CICC is

significantly higher than that of listed companies

sponsored by other investment banks. Investors are

advised to check the capabilities of sponsors from

multiple dimensions such as issuance experience, net

Analysis on the Inﬂuencing Factors of IPO Under-pricing on Sci-tech Innovation Board in China

261

capital, and Sci-tech innovation Board investment

and research when applying for new shares, rather

than just referring to a single indicator such as their

market share or net profit.

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