A Study On The Effectiveness Of Underwriter's Reputation Mechanism In IPO

Since the establishment,Chinese initial public offering market(referred to as the IPO market)becoming more mature and more perfect in the past 20 years,in which the securities underwriters play a very important financial intermediary role in the enterprise IPO process.How can an investor identify the function of the underwriter to improve the efficiency of the securities market?Therefore,it is necessary to study the underwriter reputation.Including the impact of underwriter reputation on IPO valuation bubbles,firm quality and underwriting expenses.Based on this,this paper explores the economic consequences of investment banking reputation in IPO business.This paper selected IPO A shares samples from 1th January in 2005 to 31 th December in 2012 in the Shanghai and Shenzhen security markets,the total number of samples is 1118.First,the residual value model is used to estimate the intrinsic value of the IPO,and then the valuation bubble is measured,and the valuation bubble of China's securities market is descriptive analyzed.Then,the statistical analysis,correlation analysis and multiple regression test are carried out to study the effect of the underwriter reputation on the valuation bubble and the quality of the firm and the underwriting cost.The following conclusions are obtained:(1)IPO valuation bubble phenomenon in China's securities market is universal,underwriter reputation and valuation bubble is positively related.Underwriters use their reputation to improve the IPO issue price,they did not play an effective market intermediary certification role,but the IPO was promoted and packaged;(2)The underwriter reputation is positively related to the quality of the firm.The valuation bubble is negatively correlated with the follow-up business performance.Meanwhile,the valuation bubble also weakens the positive correlation between the underwriter's reputation and the operating performance.Underwriters have recognized the quality of the enterprise,but this certification is weakened by the valuation bubble;(3)Based on the improvement of the underwriting expense rate formula,this paper finds that the underwriting expense rate in China's IPO market is much higher than that7% in the US market.The impact of underwriter reputation and valuation bubble on the underwriting expense ratio is prominent:the higher underwriter reputation,the lower expense rate;the greater valuation bubble,the higher underwriting expense rate.This paper analyzes the influence of underwriter's reputation on the IPO valuation bubble,the enterprise quality and the underwriting cost from the theoretical and empirical perspectives,it can reshape the underwriter's reputation in practice,standardize the underwriter's behavior,improve the rational allocation of financial resources,to provide evidence to stimulate IPO market and the underwriting business healthy development.