A Study On Underwriter Reputation

In order to solve the problem of information asymmetry in the stock market, as information producers, distinguishing excellent enterprises from mediocre ones underwriters improved the securities market efficiency. Underwriter reputation theory explained the constraints of the market mechanism of the moral hazard of underwriters, and proved that underwriter reputation mechanism could maintain the high efficiency of securities markets.This paper reviews the theory of underwriter reputation, as well as domestic and foreign scholars’ empirical results on the theory of underwriter reputation. The literature shows that the investment bank reputation mechanism in mature markets is much more effective than the one in China’s A share market.China’s A-share market constantly engaged in market-oriented reforms, since it established in the form of planned economy. Every change, every step of market-oriented reforms promoted the China’s securities market. In this process, the Chinese scholars have lighted that, state interest groups in China’s stock market had privileges from administrative examination and approval department, and these behaviors distorted the market mechanism.This article is the first time to study the impact of political capital of underwriters on China’s securities market. In this paper, political capital, measured with underwriters’ property rights background, as a part of the underwriters’ reputation, was studied that whether the political capital to bring a significant impact on China’s A-share company IPO underpricing. Meanwhile, this article studied whether the securities regulatory authorities in China discriminated some underwriters based on their property right background, and whether there was a significant difference between the business quality of these underwriters with different property rights background.This paper selected989valid samples listed in China’s A-share market from2006to2011as research object, studied the relationship between IPO underpricing, firm performance, publishing hardship and underwriters’ property right background compared with underwriters’ reputation, respectively.The results of this study shown a significant negative correlation relationship between underwriters’ reputation and IPO underpricing in China’s A share market, and comparing with state-owned and private underwriters, the joint venture underwriters got less IPO underpricing. That means the joint venture underwriters were more trusted by investors and IPO firms. The study also show that there were no relationships between property right background and underwriters’business quality and publishing hardship, respectively.The results of this study shown a contradiction, which is, with the conduct of market-oriented reforms in China’s securities market, the public speculation of state-owned underwriters had privileges was not true, and the joint venture underwriters didn’t show better performance than other underwriters, on the contrary, the investors treat this speculation as a truth, which lead their trust in the joint venture underwriters. This contradiction shows the investors in China should be more rational when investing.The empirical results shows that the underwriters’ reputation mechanism in China’s A share market reflects the market-oriented reforms of China’s A share market has made certain achievements. And this paper has important reference value for China’s A-share market investors are rational investment and China’s capital markets’ improvement.