An Empirical Study On The Relationship Between Underwriter Reputation And IPO Underpricing

IPO underpricing problem has attracted many scholars’ attention since it was proposed. Domestic scholars usually make analysis basing on the theory of information asymmetry, signal theory, investor sentiment and the special regulation on IPO pricing. But they ignoed the factor of underwriters’ reputation. Therefore, this paper will research from the point of underwriters’ reputation, investigate the effects of the underwriters’ reputation on underpricing of IPO and stocks’ long-term yields.On the basis of foreign scholars’ study of the issuance data of European and American stock market, the paper proposes two hypotheses: There is a significant positive correlation between the underwriters’ reputation and IPO underpricing and there is a significant negative correlation between the underwriters’ reputation and stocks long-term yields. Then the author adopted the annually ranking of underwriters’ performance, published by the Commission as a measure of underwriters’ reputation. The top ten of the ranking are respected as underwriter with good reputation, and the others are bad ones. To exam the hypothese one, the author select the data of IPO on A share market between 2010.1 and 2013.12. And then make regression model of underwriters’ reputation and IPO underpricing. The result shows that there the hypothesis one is correct. In addition, for hypothesis two, the author selected sample from 2010.1 to 2015.6 to analyze the relationship between the reputation of underwriters and the IPO underpricing. Then concluded that the reputation of underwriters has an active infection on the long-term yields of IPO stocks. This conclusion provides a new perspective and a new theoretical explanation to explain the phenomenon of IPO underpricing. And policies which based on the conclusions of the study will improve the market efficiency.