Empirical Research On The Relationship Of Underwriter Reputation And IPO Underpricing

Since the sixties of the last century, foreign scholars found the IPO underpricing phenomenon, it attracted a large number of scholars to study IPO underpricing. Scholars studies found that the reputation of the underwriters have an important impact on the IPO underpricing, there exists serious information asymmetry between the investor and the issuer, between the investor. Underwriters act as a bridge to connect investors and issuers, obviously in some extent can reduce the degree of information asymmetry between them.Meanwhile, the relationship between the reputation of underwriter and the long-run performance is a meaningful topic which deserves widely research, some scholars points out that the underwriter reputation has a positive effect on the long term market performance, but there are few scholars research on the topic of operating performance. This fact offers us a research opportunity. This paper make a multiple regression analysis basing on the three-year period2009-2010data, we found the conclusion is exactly the same with the former studies, not only on the market performance, but also on the operating performance.This paper consists of six parts, the main contents of each part are as follows: The first chapter is the introduction, First, we described the status of the high rates of domestic and foreign IPO underpricing, introduces the research background, and pointed out the practical and theoretical significance of this study. Second, we made a brief summary of the main content of each part of the article, by way of a flow chart to show the research framework of this article, and finally pointed out the research methods and research tools I applied.The second chapter is a literature review, In this section, we first introduced the hypothesis discovered by foreign scholars on IPO underpricing, it includes the winner curse hypothesis, the underwriters monopoly hypothesis, market feedback hypothesis, the signal hypothesis and the hypothesis of speculative bubble; Then we reviewed the measurement of the underwriters reputation applied by Chinese and foreign scholars, As can be seen, there was not an authoritative measurement of underwriters’reputation in academia yet; Finally we reviewed the literature about the relationship between the IPO underpricing and the long-term operating and market performance. We found that there is no unified conclusion between them.The third chapter is the theoretical analysis and hypotheses, at the beginning of this part we introduced the Asymmetric information theory, behavioral finance theory, signal transmission theory and the theory of noise trading one by one, besides that we pointed the logic of the Underwriters reputation on IPO underpricing and long-run market and operating performance. On the basis of these, we pointed out the assumption of this article, there are:H1:Underwriter Reputation and the IPO underpricing rate significantly negatively correlated;H2a:Underwriter reputation has a significant positive effect on the company’s long-term operating results;H2b:Underwriter reputation has a significant positive effect on the company’s long-term market performance.The forth chapter is the Study Designation. In order to verify these assumptions, we designed two multiple linear regression models, model one is to examine the relationship between the underwriters reputation and the underpricing rate of the IPO companies, model two is to test the relationship between the underwriter reputation and IPOs operating results and market performance. The explanatory variable is underpricing rate (IR), cumulative returns(AR),,and the explanatory variables is underwriters’ reputation, the control variables are Proportion of tradable shares, turnover rate of the first day,the success rate, return on equity, asset-liability ratio, the proportion of independent directors in the board, the issue listed interval, total leverage, the PE after IPO and so on. The last part of this chapter is the detailed description of all these variables.The fifth chapter is the results of the empirical and the analysis of the results. The first one is about the descriptive statistics of relevant variables, the second one is about the correlation analysis of the main variables. The third one is the multiple regression analysis, we finally make the robustness test, by this test we confirmed that the above conclusions are correct and sound.The sixth part of this chapter mainly address the research conclusions and policy recommendations. We concluded on the empirical study, then we made suggestions about the risk control, about the quality of personnel and about the Underwritings choice. Also, we pointed that the regulatory authorities can do more like building a credit history or building the incentives for underwriters. At last we pointed out the shortage of this article.The article is theoretical and practical significance for us, there are as follows:(1) It is a supplement for the exit literature. There still do not exist a unified conclusion between the relationship of the reputation and the underpricing rate, this article tries to discover new proof about this, so it enriches the empirical evidence for their relationship. Besides that, we offered a new perspective on this sector.(2)The underpricing rate can acted as a reference when we want to check whether the pricing is reasonable or not, so they are strongly connected between the underwriters reputation and the IPO underprincing, it is q quite meaningful research topic. From the birth of China’s securities market till now is a mere twenty years, the related regulatory mechanism and the operation of the market mechanism is not perfect, and Inevitably will appear the "fade" phenomenon in a new listed company. This may be related with the poor oversight of the supervision sector. By doing this research, it is quite important to refer the relationship between the reputation and the underpricing or the long-run performance.The contribution to this article are as follows:(1) The contribution of the research perspective. Previous scholars for the study of long-term market performance is not much, mostly examine the relationship between the expedition company quality and long-term market performance, this article starts from the reputation perspective, obviously this is a supplement for the existed literature.(2) The choosing of the research samples, for the sake of the global financial crisis, we collected the data from year2009to year2011IPOs in Shanghai and Shan zhen security markets, we use these samples to verify the relationship between the reputation of the underwriters of the IPO underpricing, and the long-term performance of the listed companies. This will enrich the existed research.(3) Theoretical analysis. The former scholar pick one or two aspects when verifying their relationship, in this article,we choose more theories like the Asymmetric information theory, signal transmission theory and behavioral finance theory. This may make the research more fabulous.There still exists some shortages in the passage, there are as follows:(1) First, the measurement of the reputation of the underwriters. In this paper, with reference to the MW rule, we rank the underwriters based on the number and amount of the underwriters underwriting take. The results may varies with different measurement and thus results to different empirical results.(2)Second, though the empirical results meets our assumption in the model one, in the second model, the goodness of fit is not that proper. So there are still some factors that will affects the long-run performance that we did not applied.(3) Third, we take a period of18months as the cumulative yields in the long-run, some scholars pick it more than18months,so it may affects the empirical results in some extent.