The Impact of Enterprise Innovation Level on IPO Underpricing under Registration System - Based on Signaling Theory

Abstract

Background: Chinese capital market has continued to develop and mature recently. And in December 2021, the Central Economic Work Conference formally proposed the full implementation of the stock issuance registration system. In this context, the phenomenon of IPO underpricing has not been effectively alleviated in the Chinese capital market.

Objective: This paper aims to analyze the impact of listed companies’ characteristics and underwriters’ underwriting level on high IPO underpricing in the Chinese capital market, find the main reasons for high IPO pricing, and ultimately help enterprises alleviate IPO high underpricing.

Methods: Based on incomplete adjustment theory and signal transmission theory, this paper analyzes the impact of listed companies’ innovation level (R&D), governance level (CG), and underwriters’ underwriting level on high IPO underpricing in the Chinese capital market through the RE model and robustness test. And all the data are from the CSMAR database and related enterprise annual report search.

Conclusion: Based on the signal transmission theory, this paper empirically finds that the high innovation level of enterprises can replace their active underpricing issuance by transmitting high-quality signals to investors, thus alleviating the phenomenon of high IPO underpricing in China. But the level of corporate governance is difficult to send a signal to investors, and underwriters have no significant impact on IPO underpricing. Therefore, the main reason for the high IPO underpricing in China is the active underpricing of the issuer. And enterprises bear the cost of eliminating information asymmetry through low-price issuance between enterprises and investors.