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Selection Bias and the Underwriter Certification of the Largest Shareholders in Seasoned Equity Offerings

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  • Chin†Chong Lee
  • Wai†Ching Poon
  • Jothee Sinnakkannu

Abstract

The largest shareholders of issuing firms in Hong Kong are eligible to underwrite rights issues and open offers. We hypothesize that the largest shareholders as underwriters who possess more information are better than investment banks in certifying firm value. Our analyses show that the largest shareholders self†select into their preferred issuing firms, and a selection bias in the choice of underwriters arises. After controlling for firm and issue characteristics and addressing the selection bias, our findings support our hypothesis. We also find that investment banks with greater access to information through prior underwriting relationship provide better certification than investment banks without such relationship.

Suggested Citation

  • Chin†Chong Lee & Wai†Ching Poon & Jothee Sinnakkannu, 2018. "Selection Bias and the Underwriter Certification of the Largest Shareholders in Seasoned Equity Offerings," International Review of Finance, International Review of Finance Ltd., vol. 18(2), pages 217-251, June.
    • Handle: RePEc:bla:irvfin:v:18:y:2018:i:2:p:217-251
    DOI: 10.1111/irfi.12145
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    Cited by:

    1. Lee, Chin-Chong & Poon, Wai-Ching, 2018. "Wealth transfers in rights offerings and the protective instruments," Journal of Contemporary Accounting and Economics, Elsevier, vol. 14(3), pages 335-357.
    2. Dang, Man & Puwanenthiren, Premkanth & Truong, Cameron & Henry, Darren & Vo, Xuan Vinh, 2022. "Audit quality and seasoned equity offerings methods," International Review of Financial Analysis, Elsevier, vol. 83(C).

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