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Why Chinese listed companies frequently switch lead underwriters in seasoned equity offerings: A perspective of listed companies' loyalty

  • Liu Jianghui
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    Purpose–The purpose of this paper is to explore the reasons for the high-frequency switches of lead underwriters by Chinese listed companies in their seasoned equity offerings. It contributes to the literature by filling the gap and providing evidence that institutional and non-market factors could affect listed companies' decisions to switch their lead underwriters in the Chinese capital market. Design/methodology/approach–This paper employs a numerical measure of listed companies' loyalty to evaluate their frequency of switching lead underwriters, and employs a Logit model and an OLS model to identify the key determinants of switching lead underwriters by Chinese listed companies. Findings–It is observed that the frequency of switching lead underwriters is very high among Chinese listed companies for their seasoned offerings. It is also found that underwriters' deficient reputation and the lack of industrial experience, together with the depreciation of relationship-specific assets, could have important impacts on lead underwriters being frequently switched in China. Besides, the frequent switches of lead underwriters could also be attributable to the non-market supervision and regulatory influences by Chinese authorities over the security underwriting market. Originality/value–This paper could help further the understanding of the factors that could explain the listed companies' frequent switches of their lead underwriters for their seasoned offerings in China. In addition, this paper has policy implications on how to improve the listed companies' loyalty for regulators in China. These implications could help improve the regulatory environment and promote the overall performance of the Chinese security underwriting market

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    Article provided by Emerald Group Publishing in its journal China Finance Review International.

    Volume (Year): 1 (2011)
    Issue (Month): 3 (June)
    Pages: 280-312

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    Handle: RePEc:eme:cfripp:v:1:y:2011:i:3:p:280-312
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    1. Dunbar, Craig G., 2000. "Factors affecting investment bank initial public offering market share," Journal of Financial Economics, Elsevier, vol. 55(1), pages 3-41, January.
    2. Burch, Timothy R. & Nanda, Vikram & Warther, Vincent, 2005. "Does it pay to be loyal? An empirical analysis of underwriting relationships and fees," Journal of Financial Economics, Elsevier, vol. 77(3), pages 673-699, September.
    3. Chitru S. Fernando & Vladimir A. Gatchev & Paul A. Spindt, 2005. "Wanna Dance? How Firms and Underwriters Choose Each Other," Journal of Finance, American Finance Association, vol. 60(5), pages 2437-2469, October.
    4. Ongena, Steven & Smith, David C., 2001. "The duration of bank relationships," Journal of Financial Economics, Elsevier, vol. 61(3), pages 449-475, September.
    5. James Ang & Shaojun Zhang, 2006. "Underwriting relationships: Information production costs, underwriting fees, and first mover advantage," Review of Quantitative Finance and Accounting, Springer, vol. 27(2), pages 205-229, September.
    6. Williamson, Oliver E, 1979. "Transaction-Cost Economics: The Governance of Contractural Relations," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 233-61, October.
    7. Carter, Richard B & Manaster, Steven, 1990. " Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-67, September.
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