Empirical Research On Relationship Between Accounting Firm’s Reputation And Long-Run Performance Of Initial Public Offerings In A-Share Market Of China

Since the 1990s, the Long-Run Underperformanceof the Initial Public Offerings (IPO) had become one of the most active research topics in IPO areas. A large number of foreign studies have shown that the Long-Run Underperformance may appear in a certain time after the company’s stock initial public offering. The stock market of western developed country has hundreds of years’history.The issuance of securities in China has its own characteristics which may lead to different results in research of securities industry to foreign mature markets. The initial public offering companies have the responsibility and obligation to disclose their information to market investors. Investors also want to know the status of the business,future prospects and other related news. However, due to the presence of asymmetric information in stock market, information given by the companies are limited and the investors believe that the information given by their own is not credible enough, therefore, we need intermediaries that investors and the issuing company both trust, such as accounting firms, to help deliver company information. In the company’s IPO process, accounting firms need to express an audit opinion issued a financial audit report according to the company’s financial information, and authenticate the company’s prospectus to ensure all of the information that likely to have a substantial impact on investors has been disclosed. Therefore, in the company’s IPO process, the accounting firm plays a very important role. Generally speaking, more realness in the IPO business information that passed out by the audit report which the accounting firm conducts, more trust the accounting firm can gain from investors and higher reputation value can be obtained. Similarly, in order to maintain its own reputation, the accounting firm will give priority to business-effective and low risk business in the IPO audit. In the view of the traditional theory, there is a positive impact on each other between the accounting firm’s reputation and long-run performance of the company IPO.This paper first summarizes researches on accounting firm’s reputation and long-term performance of the company IPO both home and abroad and introduces the theoretical relationship between them.Describes the method to measure the accounting firm’s reputation, and choose the most commonly used ranking method to measure the accounting firm’s reputation. Select 581 A-share market IPO stocks in 2007-2010 as samples, first established a multiple linear regression equation for the exploration on relationships between the firm’s reputation and IPO under-pricing. Then according to reputation of the accounting firms which cooperate with the company, divide the sample company into four groups for empirical studies on the relationship between the firm’s reputation and IPO long-term performance using Fama-French three-factor model. Empirical results shows that new shares of China have IPO Long-Run Underperformance, but insignificant.The IPO company cooperates with the accounting firm of high reputation may obtain a higher rate of return at the begining, but its long-term performance is lower than company cooperates with the accounting firm of general reputation. This paper deems that divergence of opinions hypothesis, fads hypothesis and insurance theory can explain this phenomenon.