The Analysis Of Underwriters Preferences When They Select Peers For IPOs

Based on the background of the high underpricing rate in the Chinese market,after analzing whether the underwiters have any Preferences when they select peers for IPOs and whether the selected comparable firms can reflect IPOs' s fair value,this paper mainly find the main reason of underwriters' behavior and the high underpricing rate.So this paper picks the study period spanning 12 years from 2006 to 2017,using comparable company multiplier method,growth matching method and propensity score matching method(PSM1: industry-profitability-company size;PSM2: industry mean EV/S-Company Characteristics)to choose comparable firms and then to compare them with comparables in the prospectus.At the same time,we have also taken into account the influence of changes in IPO pricing polices,deviding the period into three parts: 2006-2008,2009-2012,2014-2017.We find that the comparables' value in the prospectus is lower than comparables' value selected using above methods in all periods,which means that it is not affected by changes of IPO pricing policies.However,when IPO pricing policies are loose,IPO offer price will be close to or even slightly higher than comparable companies selected by underwriters,but both the offer price and comparables' value in the prospectus are significantly lower than the comparables' value under other methods during all periods.According to agency theory,underwriters' behavior is more likely to be related to their own interests.In order to verify the above results,this paper examines whether the IPOs deliberately underpricing will achieve real value in the long run and exceed comparable companies.BHAR results show that IPO companies will achieve extremely high excess returns in the first month after listing,and then there will be a one-to-two-year downturn.Subsequently,it will increase after the third year,IPO's returns will be again higher than the comparable companies.BHAR is significantly positive in both 3 years and 5 years,indicating that the long-term performance of the IPO is significantly higher than comparable companies.