Family Management,Second-generation Involvement,Excess Control And IPO Underpricing

IPO underpricing is a rather uncommon financial phenomenon in capital market which means the stock's closing price of IPO is much higher than the stock's issuing price.Many scholars study IPO underpricing in primary market and find out that IPO underpricing phenomenon is much more common in Chinese capital market compared to mature capital market in most western market.In addition,what different from those other countries is that our country has carried out a market reformation focus on IPO pricing formation.Studies found that IPO underpricing rate in China was higher than in other developed countries.Existing research about IPO underpricing mainly focus on the real economy,considering the market participants,scholars put forward a lot of theory trying to explain why the IPO underpricing is so common.These theories are almost based on information asymmetric theory.However,studies about the relationship between corporate governance and IPO underpricing are quite rare.Under the theoretical and practical background,it is meaningful for all kind of firms and capital market to study the effect of family corporate governance and family ownership structure to IPO underpricing.In China,during 30 years of reform and opening-up,the private economy has gradually become an important economic entity in the market.In these private companies,the vast majority of private companies are family-owned and family-managed businesses.From the current state of research development in this field,the research of family business is the main focus of scholars.At the same time,IPO underpricing has become the mainstream of research in financial theory.Therefore,this paper tried to combine the above two research fields,discussed the IPO underpricing of the listed family companies and explored how the three influential factors of family involvement which includes family management,the involvement of the second family and excess control affect IPO underpricing of the companies,namely,do they increase or reduce IPO underpricing of family companies.In this paper,we try to find out how the three aspects including family management,the involvement of the second generation and excess control affect IPO underpricing of family companies.This paper regards corporate governance and ownership structure of family firms as starting point and studies how corporate governance and ownership structure influence IPO underpricing of family firms after controlling the variances of year and industry.First,based on characteristics of corporate governance and ownership structure of Chinese family firms,this paper proposed hypothesis on the effects of these two factors to IPO underpricing.Then,this paper selects 419 family firms in China during 2008 to 2010 to serve as test sample.Finally,this paper uses regression analysis to process data and analyze the empirical results.Our research found that there was a significant negative correlation between the family involvement and IPO underpricing of the family listed companies.That is to say,the IPO underpricing existed,which proved that our family listing companies generally faced with IPO underpricing.However,family management and the involvement of the second generation reduce the company's IPO underpricing.At the same time,the research also proved that the family excess control increase the company's IPO underpricing.In conclusion,our empirical results support the hypothesis we have proposed.Family members involving in company management lead to a certain degree of mitigation to corporate internal agency cost and deliver a certain degree of positive information to investors in capital market,which leads to decrease in IPO underpricing.However,family excess control can be a channel to tunneling which can damage the interest of small shareholders.Excess control introduces a new type of agency problem which generate between controlling shareholders and minority shareholders.Besides the traditional agency problem,the new type of agency problem can also deliver negative information to participants in capital market which will decrease the market value of the company and then lower the issuing price of IPO which means the IPO underpricing will be higher.