Abnormal Underwriting Fees And IPO Pricing

As an important part of new issue,the rationality of IPO pricing has an important impact on the efficiency of stock market resource allocation.Underwriters,as the key intermediaries in the IPO pricing process,are widely concerned.In 2005,China began to implement the IPO pricing inquiry system.The IPO pricing method realized the transition from the administratively designated price-to-earnings ratio to the inquiry system,and initially realized the market-oriented exploration of IPO pricing method.After the implementation of the inquiry system,issuers and their underwriters have more discretion over pricing IPO shares.In practice,compared with issuers,underwriters have more experience and professional advantages in the issuance of new issues and thus they play a leading role in the IPO pricing process.Studies have shown that there is a conflict of interest between issuers and underwriters.Issuers can mitigate this conflict of interest by increasing compensation incentive of underwriters to increase the pay-for-performance sensitivity of the underwriter's compensation so that the underwriters will favor the interests of the issuer and lead the underwriters to expend greater effort,resulting in offer prices being set higher.So in China's capital market environment,will the difference in underwriting fees have an impact on the IPO pricing?Using a sample of A-share listed companies in China from 2009 to 2017,this paper empirically tests the impact of abnormal underwriting fees on IPO pricing.Specifically,this paper first examines whether abnormal underwriting fees have an impact on IPO pricing.Secondly,based on the heterogeneity of government pricing regulations system,this paper respectively discusses the impact of abnormal underwriting fees on IPO pricing.Finally,this paper further discusses the possible ways that abnormal underwriting fees affect IPO pricing.We find that abnormal underwriting fees have a significant positive impact on IPO pricing.The results also show that,in market-oriented pricing stage,abnormal underwriting fees have a significant positive impact on IPO pricing,but in pricing control period,abnormal underwriting fees are unrelated to IPO pricing.Further research shows that the positive impact of abnormal underwriting fees on IPO pricing is partly due to the greater degree of earnings management of IPO companies.This research confirms that abnormal underwriting fees are one of the influencing factors of IPO pricing of listed companies in China.