The Impact Of Underwriters’ Reputation On IPO Underpricing Under The Background Of New Shares Issuance System Reform

The stock issue system should transit from the verification system to the registration system step by step, which was proposed by the Third Plenary Session of the Eighteenth Central Committee on November 15,2013. For a long time, an appeal has been made for substituting the registration system for the vertification system. And it is the inevitable result to promote the registration system with the development of the marketization because it can be helpful to the resource configuration of the capital market. The stock issue system has been reformed several times in China and the underwriters, as finacial intermediaries in the distribution market, play a vital role in every reform. Therefore, the advance of the registration system will bring more opportunities and challenges to the underwriters.In initial public offering market, the underwriters play an important role as information producers and certification intermediaries. The underwriters’ reputation connects with their developments meanwhile it has effects on the financial securities issue market. And it has attracted intensive attention because of its importance in IPO. Therefore, it is very meaningful to determine the effects of the underwriters’ reputation in Growth Enterprise Market of China. In this paper, we focused on the effects of the underwriters’ reputation in Growth Enterprise Market of China from the perspective of underwriter under the background that the registration system reform is being accelerated in China. Furthermore, the research results presented in this paper may provide constructive suggestions for the underwriters in the upcoming registration system.Firstly, we analyzed the theories about the underwriter’s reputation and designed one model based on the Carter-Manaster model in this paper. The model indicated that the underwriters’ reputation was negatively related with IPO underpricing. Then we summarized the reforms of stock issue system and the impacts of these reforms on the underwriters’ role. Based on the above theory, this paper mainly used empirical research methods. In the setting of related variables, we introduced year, industry and VC as control variables. The paper mainly studied on the effects of underwriters’ reputation on the GEM IPO underpricing under the background of new shares issuance system reform. In this paper I employed a form of variance decomposition that is based on a model comparison ANOVA. Each effect was represented with a set of dummy variables. We compared the explained variance of full model (containing all effects) with the explained variance of an equation that excludes a specific effect. By using this approach, we could get the amount of variance explained by every effects and check out the significance of each factor on the dependent variable of the model.Past variance decomposition studies used either a nested ANOVA or components of variance technique, which relied on some restrictive assumptions. My approach went further because I measured all effects in the context of a model that always contains all other effects, thus all possible covariance was controlled. In addition to controlling for covariance between the effects, some restrictive assumptions in the model was not important. So we could check the efficiency of underwriters’ reputation mechanism in GEM of China objectively.Finely, some related policy recommendations were put forward.On the whole, the empirical results showed that underwriters’ reputation mechanism in Growth Enterprise Market of China was invalid. So the Carter-Manaster model and the underwriters’ reputation mechanism model were not supported in Growth Enterprise Market of China. Underwriters’ reputation did not reduce the rate of IPO underpricing in Growth Enterprise Market. According to the above analysis, there are some kinds of reasons why underwriters’ reputation mechanism is not valid in Growth Enterprise Market of China, such as the new share issuance system. Based on the underwriters’ role under America registration system and the empirical reason analysis, we give out some meaningful suggestions to strengthen the efficiency of underwriter reputation for the upcoming registration system.