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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

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.

Suggested Citation

  • Su, Chen & Bangassa, Kenbata, 2011. "The impact of underwriter reputation on initial returns and long-run performance of Chinese IPOs," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 21(5), pages 760-791.
  • Handle: RePEc:eee:intfin:v:21:y:2011:i:5:p:760-791
    DOI: 10.1016/j.intfin.2011.06.002
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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.
    2. Roy Kouwenberg & Pipat Thontirawong, 2016. "Group affiliation and earnings management of Asian IPO issuers," Review of Quantitative Finance and Accounting, Springer, vol. 47(4), pages 897-917, November.
    3. Deng, Qi & Zhou, Zhong-guo, 2016. "Overreaction in ChiNext IPOs' initial returns: How much and what caused it?," Emerging Markets Review, Elsevier, vol. 29(C), pages 82-103.
    4. repec:eee:finana:v:52:y:2017:i:c:p:62-76 is not listed on IDEAS
    5. repec:eee:intfin:v:49:y:2017:i:c:p:184-199 is not listed on IDEAS
    6. Vithessonthi, Chaiporn, 2014. "What explains the initial return of initial public offerings after the 1997 Asian financial crisis? Evidence from Thailand," Journal of Multinational Financial Management, Elsevier, vol. 27(C), pages 89-113.

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    Keywords

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

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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