Research On The Relationship Between Underwriter Reputation And IPO Issuer’s Earnings Management In GEM

GEM has enabled many emerging SMEs to solve their financing constrains through public offering and listing since it was established. For the purpose of qualifying for offering and listing and manipulating issue price, enterprises possess the motivation of earnings management in IPO market, which not only harms the interests of investors, but also affects the efficiency allocation of capital. The underwriter plays an important role in reducing the degree of information asymmetry and repressing issuer’s opportunism behavior in securities market, which is assured by its reputation mechanism.On the background of GEM, considering the requirement of growth, this thesis explains the motivation of earnings management from the perspective of capital market. It discusses the importance of reputation mechanism in "information producer" and "certifying agent" role played by the underwriter. The thesis also studies the role of underwriter reputation in restraining IPO issuer’s earnings management through the theoretical and empirical research. From a theoretical point of view, it rationalizes the relationship betweent underwriter reputation and issuer’s earnings management by in-depth analysis of "certifying agent theory" and the underwriter’s function of supervision. Meanwhile, taking283IPO issuers in GEM from2009to2011as the research object, this thesis uses Adjusted Jones-CFO model to measure the degree of earnings management, and selects M-W method to give a score and rank to underwriter reputation. Through independent-samples T test, correlation test and multiple regression analysis, it draws the following conclusions:(1) In the year before IPO and the very year of IPO, enterprises in GEM tend to have a motivation of positive (increasing earnings) earnings management behavior.(2) In current Chinese GEM, underwriter reputation is not the significant influencing factor of IPO issuer’s earnings management. The conclusions indicate that the underwriter can not play its "information producer" and "certifying agent" role effectively in GEM, and the underwriter reputation mechanism remains to be formed and perfected in China.