Sponsor Representative Social Networks And Initial Public Offering

As a connecting link between individuals,social networks are widespread in daily life and profoundly affect people's behavioral decisions.Especially in the context of relationship culture in China,people tend to rely on relationships to carry out economic activities and maintain interpersonal communication.Hometown network,as a typical representative of social networks,has obvious Chinese characteristics.Under the influence of five thousand years of agricultural civilization and Confucianism,the hometown complex is deeply rooted in the hearts of Chinese people.Correspondingly,the emotional involvement and behavioral preferences caused by the hometown complex are also stronger.The existing literature has studied the impact of hometown networks on corporate governance.However,in the field of securities issuance,there is no research to explore the mechanism of the relationship among fellow-townsmen.This paper takes the A-share initial public offering firms from 2005 to 2012 as the research object,and examines the effect of the hometown networks between the sponsor representative and the issuer on the company's initial public offering.The conclusion is as follow:First,when the sponsor representative and the issuer's chairman or CEO are fellow-townsmen,the sponsor representative can identify the IPO earnings management better.At the same time,the reputation mechanism within the fellow-townsmen group will also inhibit the issuer's earnings management motivation.Second,the sponsor representative has more information advantages because of hometown networks.Therefore,the sponsor representative is able to act the“first gatekeeper”of enterprise listing and recommend high quality companies to enter the capital market.Furthermore,the sponsor representative takes the responsibility for continuous supervision more efficiently after the company goes public.As a result,the performance of the listed companies is better.Third,hometown networks promote communication and effectively relieve information asymmetry in the IPO process,thus improving the quality of the application materials and helping issuers to get listed faster.The paper has certain theoretical and practical significance.Apart from expanding the research scope of IPO and hometown networks,the research proves that the hometown networks have a positive impact on IPO,and provide a new perspective for the issuer to choose the sponsor representative.