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The impact of underwriter reputation on initial returns and long-run performance of Chinese IPOs

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  • Su, Chen
  • Bangassa, Kenbata
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Abstract

This study examines initial returns and subsequent long-run performance of Chinese initial public offerings (IPOs) over the period 2001–2008, with specific emphasis on the impact of underwriter reputation. We develop three proxies for underwriter reputation based on either the registered capital of each underwriter, the relative market share, or the number of all IPOs managed by each underwriter. We find little influence of underwriter reputation on the level of IPO underpricing, but a significantly positive relationship between underwriter reputation and the level of IPO long-run performance, which is meaningful for both academics and professionals. Although the significantly negative three-year market-adjusted buy-and-hold abnormal return suggests a potential loss to investors who hold Chinese IPOs in the long run, investing in IPOs managed by more prestigious underwriters helps mitigate the loss. The results are robust to various checks that control for the problem of endogeneity or correct for cross-sectional dependence of observations in the buy-and-hold abnormal returns.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 21 (2011)
Issue (Month): 5 ()
Pages: 760-791

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Handle: RePEc:eee:intfin:v:21:y:2011:i:5:p:760-791

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Web page: http://www.elsevier.com/locate/intfin

Related research

Keywords: Underwriter reputation; Initial public offerings (IPOs); Initial returns; Long-run performance; China stock market;

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Cited by:
  1. Su, Chen & Brookfield, David, 2013. "An evaluation of the impact of stock market reforms on IPO under-pricing in China: The certification role of underwriters," International Review of Financial Analysis, Elsevier, vol. 28(C), pages 20-33.

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