Independent Director Reputation, Growth Enterprise IPO Under-pricing And IPO Return In Median-term

Since the1980s, the corporate governance issue has been a hot topic in the theoretical and practical circles. In the1990s, the worldwide set off three waves of corporate governance,and Enron financial scandal led the corporate governance to a new high wave because of its bankruptcy in2002.It shows that the complexity and importance of the corporate governance. Independent director system as an important part of corporate governance, so comprehensive study of the independent director system is particularly important.In China GEM SMEs is weak in economic strength, and the operating characteristics of internal family is very prominent.Therefore they exacerbate the business management risk and moral hazard.So it is necessary to strengthen self-management, self-constraints, standardized operation of listed companies. One of the main measures to improve the corporate governance structure of listed companies on the GEM is the introduction of independent director system. Interim Measures for the Administration of Initial Public Offering and listing on GEM requires that the issuers should establish and improve the shareholders meeting, the supervisory board and the independent director system.Studies have shown that the implementation of the independent director system in China is not satisfactory. The trust of independent directors system is not enough. Scholars are exploring incentive and restraint mechanisms to make an independent director to exercise effectively. It is generally believed that the incentive and restraint mechanisms of independent directors are divided into the following three ways:first, economic, second, the legal, third, the reputation. From the practical point of view, the economic and the legal don’t work. From the implementation of the independent director system in the successful countries,the reputation is one of the most important. So this article will be the focus of the study focused on the reputation incentive mechanism.So the paper will try to find the effective evidences of independent director reputation mechanism in the Chinese capital market.In GEM Listing there are phenomenons of high stock price, high price-earnings ratio, and high raising capital. They result in the market allocation of resources inefficiently. The IPO in GEM appears the three features:underpricing, the long-run underperformance, the hot issue market. More and more scholars are into its theoretical and empirical research. China’s stock market is an emerging market economy.There are also these three features, but the new shares underpricing rate is higher to the mature stock market,especially the GEM. Therfore we need more in-depth study of the GEM IPO underpricing.In view of this, from the view of the reputation of the independent directors this article studies the phenomenon of high underpricing of the IPO market and the IPO interim performance to explain the role of independent directors in China GEM new shares issued. Will the high reputation of the independent directors signal the quality of the IPO firms in the market,and then reduce the underpricing rate? In the speculative atmosphere of the market, when the announcements of listed companies to hire independent directors with the high reputation, what the market will react? Announcements to replace the independent directors with the different types of reputation, what the market will react?What kind of relationship between The reputation of the independent directors and the IPO interim performance?In order to test the effectiveness of the independent directors’s reputation mechanism in China, selecting the GEM of279listed companies for the initial sample, excluding300060because of termination of listing, and removing90listed companies because of the unobtaining data in CSMAR database and Sina Financial Network,the article’s final sample is188listed companies. First studying the relationship between the reputation of the independent directors and the underpricing;second studying the announcements to replace the independent directors with the different types of reputation. In GEM there are26companies to declare the replacement of independent directors in2009-2011,of which14listed companies to the replacement of the independent directors with the low reputation for the high reputation of independent directors,12listed companies to the replacement of the independent directors with the high reputation for the low reputation of independent directors.Finally, studying the relationship between the reputation of the independent directors and the IPO interim performance.Through empirical research.I find that there is signal function in the reputation of the independent directors, and the market will judge the independent directors’s the performance.The independent directors can urge the listed companies to self-management, self-disciplined and standardized operation.They can improve the state of governance of listed companies:(1)empirical analysis showing that, the reputation of the independent directors can significantly reduce the IPO underpricing rate in GEM.and can significantly increase the IPO interim performance.(2)the professional background of the independent directors can significantly reduce the IPO underpricing rate and significantly improve the IPO interim performance.(3) educational background of independent directors is not significant.(4)the proportion of independent directors can significantly reduce the IPO underpricing rate, but it did not affect the IPO interim performance.(5)throuth the descriptive statistics analysis, the reputation of independent directors with different types can convey different signal to the market. the CAR in the second type of replacement is significantly greater than the second type of replacement.This article has two aspects of innovation.first in the research perspective, the year of stock data and the number is very small in GEM.This article is from the view of the reputation of the independent directors to study the corporate governance of China’s GEM. Based on the experience of Chinese GEM data, the article studies the impact of the reputation of independent directors on the IPO company’s underpricing, and the interim performance. Second,research achievements of innovation, this article finds the evidence of the effectiveness on the reputation mechanisms of independent directors. The reputation of independent director can signal the quality of IPO companies.