theory | variables | Expected sign | equation | Explanation |
Government regulation | Allocation rate (%) | − | Allocation rate = Actual number of online distributions/effective online subscriptions | As the government’s proxy variable for quantitative control, reflecting the supply and demand relationship of new stocks, the smaller the success rate, the more serious the phenomenon of new stocks falling short of demand. |
Price suppression | + | Price suppression = industry average P/E − the issue P/E of the stock | Reflects the government’s control over the issuance price. The greater the issue price is suppressed, the higher the underpricing rate of new shares is. | |
| Listing time lag | + | Listing time lag = Initial Listing Day − Initial Issue Date | The longer the listing holds, the greater the investor’s return, and the higher the underpricing rate. |
Investors’ sentiment | Turnover rate | + | Turnover ratio = trading volume on the first day of listing/tradable shares | It is generally believed that the greater the disagreement among investors, the higher the exchange rate on the first day of listing. Due to lack of short-selling mechanism in the market, resulting in higher prices. |
Information asymmetry | Total share capital after issuance | − | Total share capital after issuance = pre-issuance share capital + total issue amount | After the issuance, the share capital represents the size of the company. The larger the share capital after issuance, the lower the degree of information asymmetry and the lower the underpricing rate. |
Firm age | − | Firm age = release date − established date | The larger the firm age, the more information available to investors, the lower the degree of information asymmetry and the lower the underpricing rate. | |
Investment bank reputation | Investment bank | − | Virtual variables, 1 for famous investment banks, 0 for non-famous investment banks | It is generally believed that high-level investment banks have higher pricing power and thus lower the level of underpricing. |