Dual Sponsors’ Reputation, Social Trust And IPO Approval

Under the Approval System implemented from2004, the issuance examination committee still has the strong power of making the decision on the qualification for listing in China stock market. As one of the participant in the issuance examination process, the members of issuance examination committee, who always are faced with information asymmetry, usually get the information of the enterprise that submitted the application for listing through the sponsor medium, including sponsor institutes and representatives of sponsor. Therefore, the dual sponsors’reputation may affect the direct impression of the enterprises on the members of the issuance examination committee, and also have the influence on the probability of getting the qualification for initial public offerings (IPO).Using data of companies who submitted the application for listing in China stock market from2007to2012, this paper comprehensively explores how dual sponsors’ reputation, including sponsor institutes’reputation and the reputation of the repre-sentative of sponsor, affects the probability of enterprises’passing IPO verification. Furthermore, given that China has developed into the special period, when the econ-omy is faced with development and reformation, the social trust between areas in China differs from one another. As a result, this paper adds the social trust into the research, which explores the influence posed by dual sponsors’reputation on the probability of enterprises’passing IPO verification. That is getting further investiga-tion whether the difference of social trust between areas pose effects on how much the enterprises reliance on dual sponsors’reputation when they submitted the application for IPO.The study finds:(1) Sponsor institutes do not play the significantly important role when enterprises submit the IPO application, but the representatives of sponsor do. Only the representatives of sponsor with high reputation make a difference for im-proving probability of the firms’ passing IPO verification.(2) Although sponsor insti- tutes’reputation makes little difference alone, it can pose a further impact on influ-ence which the reputation of representative of sponsor makes. The effect includes not only the contribution to the greater probability for the firm to pass IPO verification, especially for the private firms, but also the guarantee for better post-IPO firms’ achievement. Thus, dual sponsors system is proved to be justifiable and effective.(3) Social trust makes a difference to how much the enterprises depend on the sponsors’ reputation when they submitted the application for listing. The enterprises, which are local in the area with poor social trust, prefer to hire prestigious representatives of sponsor in order to have greater probability of getting the IPO qualification. Also, so-cial trust poses more effect on the private firms for depending on the dual sponsors’ reputation when they submitted the application for listing.This paper not only provides empirical evidence for deeply understanding wheth-er the dual sponsors system plays the effective and essential role in the process of IPO verification, but also enriches the supplementary literature for the representatives of sponsor field. As a result, the research can lead theoretical and empirical evidence for improving the system of issuing new shares, and stabilizing the capital market.