The Study Of Relationship Between Investment Bank Reputation And The Underpricing Of Initial Public Offerings

A large amount of empirical research both at home and abroad have shown that IPOs have been underpriced in the security markets all around the world. This phenomenon exists not only in the developed country but in developing countries. Scholars have put forward many kinds of theories to explain the puzzling phenomenon. The theory of investment bank reputation is one of these theories.The theory of investment bank reputation considers that a prestigious investment bank can reduce information asymmetry and lower the degree of IPOs underpricing more effectively than a common investment bank. But it is unknown whether this conclusion applicable to developed country is true to Chinese market.This paper studies the relationship between investment bank reputation and the underpricing of IPOs in china by using the data of 230 IPOs in Shanghai and Shenzhen security markets from June 2006 to June 2008. At first, the author has classified investment banks into three categories according to the reputation measurement, and Kruskal-Wallis has been used to test if significient difference existed between the rate of IPOs underpricing that be managed by investment banks in different categories. And this paper still uses regression to analyse the relationship between investment bank reputation and the IPOs underpricing. But these empirical tests show that the theory of investment bank reputation is not applicable to our country.In author's opinion, the main factor result in the unsignificient relationship between investment bank reputation and the underpricing of IPOs is the investment bank'behavior often lack of restriction because of the weakness of reputation mechanism. So this paper has also proposed several policy recommendations according to these situations.