| The registration-based system is the main direction of all reforms of IPOs.The transformation from the government officers' review to expert review is the only way to carry out the registration-based system since late 2003,and it is necessary for empowering the review authority to the two stock exchanges in the future.The expert review and the registration-based system is in line with the requirement of “deepening economic system reform by centering on the decisive role of the market in allocating resources” which is put forward in “Decision of the Central Committee of the Communist Party of China on Some Major Issues Concerning Comprehensively Deepening the Reform” on November 12,2013.Since late 2003,a large number of professionals on duty from the CPA companies,lawyer companies and CPV companies join the PORC.The entrance of professionals both enhances the review skills of PORC as a whole,and it makes these commissioners in a dilemma of conflict of interest for double delegation.And the rent-seeking potential of interest conflict triggers the widespread concerns.In order to get rid of the influence of it,the Securities and Exchange Commission(SEC)promulgates a number of regulations,such as to list prohibited behaviors and to provide a full-time post for some commissioners.So the following questions need to be asked.Does the interest conflict still exist? Does the interest conflict affect the decision-making of PORC as a whole? Which paths do there exist to lead to PORC connection affecting PORC`s decision-making? Is the independence of intermediaries affected? May an issuing firm with PORC connection increase the issuing price? Can the institutional investors identify the value signal from the PORC connection? The answer of these questions not only tells in what domain and to what extent influence of PORC connection exists,but also it helps solve the possible problems facing the PORC and IPO committee for the future.In order to answer these questions,the paper carries out relative studies in three aspects by theoretical analysis and empirical examination,and draws some important conclusions as follows.In order to answer the question how the applicant`s PORC connection affects the decision-making and capital allocation of PORC,the paper finishes the relative theoretical and empirical research.The theoretical analysis shows,first,if the PORC connection is helpful in passing IPO review,the applicant firm will resort it.Second,if applicant firm need the help of these intermediaries and the relative penalty cost is considered to be not too much or acceptable,it is probable to accept the request from the applicant firm.Whether the decision-making of applicants or relevant intermediaries anticipate that the rent-seeking depends on the transparency and law enforcement environment facing them.And the results of empirical research also show :(1)the PORC connection of applicant firm increases the probability of passing the IPO review,and the influence is realized by means of the PORC connection of the private firm and the PORC connection from CPA firms.(2)The effect of the PORC connection mainly took place before Feb 1,2012,when SEC enacted a regulation of publishing the procedure of IPO and SEO review and relative details(Reform 2012).And the role of the PORC connection from the underwriter`s CPA firm of the applicant firm is found to be helpful in passing the IPO review.(3)Although the existence of the PORC connections does not means the bad performance of post-IPO,the existence of the PORC connection from CPA or lawyer firms is significant to explain the probability of getting bad after the listing,and the effect of CPA or lawyer connection mainly happens in private firms.Although the PORC connection from underwriter`s CPA firm is helpful to pass IPO review,it does not mean the bad post-IPO performance.(4)Before the Reform 2012,the influence of the PORC connections and the connections from the CPA firms explains the probability of getting bad in performance regardless of private firm or not.And after the Reform 2012,the role of the PORC connections from lawyer firm can be found.In order to explain the possible paths or mechanisms of the PORC connection affecting the decision-making of the PORC,the said paper firstly analyzes the mechanism of the PORC connection affecting the audit quality or the quality of financial information,then design two paths or mechanism for the PORC connection influencing the decision-making of the PORC:(1)how the PORC connection affects the history performance of the applicant firm by means of window dressing,which further affects the decision-making by performance,(2)the PORC connection directly changes the decision-making by authority or authority game.The empirical works are implemented,and find:(1)the existence of the PORC connection from the CPA firm report better history performance,and absolute discretionary accruals become the mediator to channel the PORC connection and the report of performance.At the same time,the audit quality decrease because of the existence of the PORC connection,which means financial information audited by the CPA firm becomes unreliable;(2)the history financial performance only transfers the partial influence of the PORC connection,and the PORC connection can independently changes the decision-making of the PORC.That is to say,the PORC connection has two paths to affect the decision-making of the PORC at least.In the study of how the institutional investors response the existence of the PORC connection in IPO application,and the PORC connection affects the decisionmaking of issuing firm and its lead underwriter on issuing price,the paper finishes the following researches.The theoretical analysis shows,institutional investors have the ability to identify the signal of the meaning of the PORC connections,and response them in their offer price in preliminary book-building,which will affect the final issuing price.The empirical study finds:(1)the anticipated offer price from the institutional investors understands the impact of the PORC connection;(2)the signals of the PORC connection from the CPA firm is considered,but that from lawyer firms is overlooked,means the ability of institutional investors is limit,and play the partial role in searching for value.(3)the issuing firm and its lead underwriter make use of the understanding from the institutional investors,and the private issuing firm with the PORC connection increases the final issuing price.Relative to the extant literature,the paper innovates and makes a contribution in the following aspects.(1)As far as I know,the paper is the first one to explore the non-rent-seeking mechanism or path which the PORC connection affects the decision-making of the PORC,and the first one to explore and find the impact of the PORC connection to audit or financial information quality,so the research adds to the relative literature.The extant studies generally treat the PORC connection as the channel of rent-seeking,so they don't explore other possible paths which affect the decision-making of the PORC.The paper argues that the rules of avoidance decrease the role the authority,so there exists other path or mechanism to help the PORC connection play the role,and finds that the CPA firm with connection plays an important role in window dressing the performance and increases the probability of passing IPO review.(2)The paper is the first paper that explores how the PORC connections affect the IPO pricing,and further adds to the extant literature.Extant studies about the PORC connections pay more attention on the sphere of the review of IPO application,so they don`t further analyze the influence of the PORC connection in other aspects.The research relative to IPO pricing do much jobs,but at most trace the issuing firm`s financial information and its earning management.The paper step forward in the aspect of the PORC connection and IPO pricing,and find the PROC connections have influence on the offer decision-making of institutional investors and the formation of final issuing price determined by issuing firm and its lead underwriter.(3)Relative to the extant researches,the paper expand the accuracy of measuring the PORC connection,so the consistency of the coefficients estimate are improved,and explore the role channel of underwriter in IPO review.Extant literature generally considered the existence of the PORC connections by means of CPA firms,lawyer firms and underwriters.But the paper also includes the PORC connections from CPV firms and the lead underwriter`s CPA firms,which can explain the mechanism of the underwriter affect the IPO review,and it was a mystery before.Different to the extant studies,which does not consider the influence of rename or mergers and acquisitions of their intermediaries,such as CPA firms,lawyer firms,underwriter,and the paper makes bigger progress in the aspect. |
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