Intermediary Relationship Network,Earnings Quality And IPO Pricing

In a society that attaches so much importance to "personal relations" in our country,each economic entity conducts its own actions on a node of a certain relationship network.As Fan Gang(1995)said,one of the important characteristics of Chinese cultural tradition is that it attaches importance to informal social relations and informal institutional arrangements,while relatively ignores the establishment of a "rational" formal system.According to the existing literature,on the one hand,relationship network can reduce transaction costs and information asymmetry,risk uncertainty and risk,as well as provide shortcut for enterprises to acquire resources they need by establishing relationship-specific assets.On the other hand,the relationship network can obtain more excess benefit at lower cost,which provides hotbeds for collusion,rent-seeking,monopoly of the market,and cronyism.It is clear that the relationship network based on kinship,geography and industry has been playing a very important role in the company's management and the allocation of social resources whether the effect is positive or negative.Although the formal system of law and property rights has been improved in recent years,it has not changed the important role of "relationship" in the capital market.The relationship network still directly or indirectly affects the allocation of economic resources.In the process of allocation of the scarce resources of IPO listing qualification,the relationship network also plays an irreplaceable role.As important intermediaries for certifying financial information and determining issuance pricing in the IPO market,the cooperative network between accounting firms and underwriters will directly affect the independence of intermediaries,and the international relationship network constructed through the implementation of international strategy will directly affect their respective practicing ability.The independence and practicing ability of intermediaries will further affect the efficiency of the IPO market.Based on this,this paper empirically studies the mechanism of how these two kinds of networks affect earnings management and pricing efficiency of IPOs,and examines how the characteristics of issuing enterprises,institutional governance factors and attributes of international organizations affect the relationship networks.The main contents and conclusions are as follows:Firstly,taking the Chinese A-share listed companies from 2004 to 2015 as research samples,starting with the cooperative contract between accounting firms and underwriters,this paper studies the earnings quality of IPO companies and how institutional environment affect the relationship between cooperative network and IPO earnings quality.After controlling the other factors,this paper finds that the closer the relationship between accounting firms and underwriters is,the higher the degree of earnings management of IPO firms is,and the better institutional environment will inhibit the conspiracy of accounting firms and underwriters to the IPO earnings management.After PSM test and variable replacement,the above conclusion is still valid.The results show that frequent cooperation between accounting firms and underwriters will increase the IPO earnings management and lead to the decline of earnings quality of issuing companies.Although good institutional environment will restrain the damage of collusion between accounting firms and underwriters to the information quality of IPO to a certain extent,the negative effect of the cooperative network between accounting firms and underwriters on the information quality in the IPO market still exists.Secondly,taking the A-share listed companies in 2004-2015 as the research sample and the cooperation relationship between accounting firms and underwriters as the proxy index,this paper studies how the relationship network between intermediaries affects the efficiency of IPO pricing,and whether the institutional environment adjusts the relationship between them.The results show that in the IPO market,the closer the relationship between accounting firms and underwriters,the lower the efficiency of IPO pricing,which verifies the "collusion hypothesis" of intermediaries.At the same time,the perfect institutional environment restrains the negative impact of partnership on IPO pricing efficiency.After the robustness test,the above conclusion is still valid.The results show that the cooperation between accounting firms and underwriters will form collusion,and significantly increase the pricing of the primary market and the underpricing of the secondary market,which reduces the efficiency of IPO pricing and damages the interests of investors.In all the close cooperation relationship between intermediaries is not conducive to the healthy development of the capital market.Thirdly,taking A-share IPO companies from 1994 to 2016 as research sample,this paper examines the impact mechanism of the international relationship network established by accounting firms through internationalization on the earnings quality of the IPO market.The results show that the international relationship network of accounting firms can significantly improve the quality of IPO earnings,and it began to improve significantly in the third year after the establishment of the international relationship network of accounting firms,which confirms the technology spillover hypothesis.Further research finds that the higher reputation of the international accounting network and the better headquarters of institution environment,the role of international relations network in improving the quality of IPO earnings will be stronger.While the effect of joining the International Accounting Union or the International Accounting Company on the international relation network is not significantly different.Fourthly,taking Chinese A-share IPOs from 1995 to 2016 as samples,this paper examines the impact of underwriters' international relations on the pricing efficiency of IPOs and the channel mechanism.The research shows that: firstly,the premium and underpricing of IPO underwritten by underwriters with international relations are significantly lower than that of domestic underwriters.Secondly,better institutional environment of foreign capital source countries have significantly enhanced the effect of international relation on the efficiency of IPO pricing.But there is no significant difference for issuing companies with different degrees of information asymmetry,which show the functional channel is the institution bonding effect rather than technology spillover effect.Thirdly,the further test shows that the proportion of foreign capital,the largest shareholder of the issuing company and the proportion of managerial ownership have different effects on the IPO pricing of underwriters with international relations.Finally,this paper uses the distance between the headquarters of the underwriters and the nearest port and whether the headquarters is a commercial port as the tool variable of underwriters with international relations,and controls the fixed effect and self-selection at the underwriter level,it shows the conclusion is still robust.Overall,this paper finds that close cooperation between accounting firms and underwriters will reduce the quality and pricing efficiency of IPO earnings,while the international relation constructed by accounting firms through "going out" strategy and the international relation constructed by underwriters through "introducing" strategy can significantly improve the quality and pricing efficiency of IPO earnings.The international relation of accounting firms works through the "technology spillover" effect,while the underwriter's international relation works through the "institutional binding" mechanism.This study enriches the empirical study of the relationship network in the IPO market,provides a reference for the improvement of the formal system and the introduction of regulatory policies,and also provides a basis for issuing companies to select intermediaries and investors to make investment decisions.In addition,the conclusion of this paper verifies that the internationalization strategy of intermediaries plays a significant role in improving the efficiency of the IPO market,and provides an empirical basis for encouraging the further opening of China's capital market from the perspective of the efficiency of IPO.