The Deterioration Of Financial Performance And The Allocation Of IPO Resources

For a long time, the problem of deterioration of financial performance of Chinese listed companies is common in newspapers, and also the hot issues of the securities market. For example, from2010to2012,266newly listed companies’financial performance deteriorated, which accounted for up to33.84%. In addition to the problem of economic cycles, industry fluctuations and other reasons, a considerable part of "the deterioration of financial performance" resulted Irom financial fraud, profit manipulation, false disclosure, the phenomenon which underwriters recommended without insurance, and other illegal acts. In the IPO process, due to earnings indicators’decisive role in listing eligibility and IPO pricing, and the information asymmetry between IPO companies and investors, IPO earnings management is very serious. Since securities regulators lack of strength, market discipline mechanism is not strong, the underwriters’violation cost is so low that they don’t do well in the job of "certification intermediary".From a perspective of underwriters, this paper tried to study the IPO resource allocation problem in the issuance of securities, especially its relationship with the sponsor quality in the past, which is measured by the deterioration of financial performance. Upon this we infer the existence of some hidden rules. This paper argues that Chinese securities regulators use the IPO resource allocation rights to control the deterioration of financial performance. If the deterioration of financial performance of listed companies sponsored by certain underwriter is more serious, securities regulators will reduce the underwriter’s IPO opportunities. To test this hypothesis, we select the IPO-year financial performance of IPO companies during2009-2011, and observe the corresponding underwriter’s underwriting results next year which is measured by the number and proportion of IPO rejection. With the analysis tools of descriptive analysis, correlation test (Pearson, Spearman), analysis of variance, linear regression and logistic regression, we find that there is a certain correlation between financial performance and underwriting results. In particular, there is a significant negative correlation between the deterioration of operating profit and the underwriters’IPO resources. In other words, if the deterioration of operating profit of listed companies sponsored by certain underwriter is more serious, the probability that the underwriter is rejected next year is greater. Considering the particularity of GEM board and SME board, this paper also make a divided research, empirical results show that the CSRC treats the deterioration of financial performance of companies listed on the main board relatively strictly, but CSRC is relatively tolerant to companies listed on GEM board and SME board. In addition to CSRC’s administrative punishment, this paper also tried to study the mechanism of market discipline. In other word, to verify the law of "the deterioration of financial performance is more serious——the proportion of IPO rejection next year is higher——the IPO market share is smaller the third year ". The empirical results are unable to obtain adequate statistical evidence.Due to small sample data, space limitations and other reasons, there are some deficiencies. Follow-up studies can analyze the relationship between the degree of deterioration of financial performance and the control of IPO resources with more sample data, and if there are hidden constraints of IPO market on underwriter reputation. In addition, we find that the CSRC’s regulation of the Main board was significantly more stringent than the GEM board and SME board, follow-up studies can make further research on this problem from a perspective of policy implications and market selection.