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Financial intermediations, underwriter reputations and underwriting risks in China's stock market

Author

Listed:
  • Ming Jia
  • Difang Wan
  • Zhe Zhang

Abstract

Insider control and administrative interruptions are the two main factors of corporate governance in the absence of well-organised legal systems and regulation mechanisms in China. Under this background, there are great underwriting risks in the underwriting business and it does damage to the healthy development of financial intermediations and the whole financial market. This article examines the underwriting risks and puts forward hypotheses based on the underwriter reputation theories and insider control theories and lastly, does an empirical study on them. The results show that insider control, the dual-shareholder structures and administrative interruptions are the main sources of the underwriting risks. However, the compensation mechanisms of the underwriting risks are inefficient. Although reputation plays a very important role in the underwriters' decisions and in controlling the underwriting risks, the high-reputation underwriters' decisions are interrupted frequently.

Suggested Citation

  • Ming Jia & Difang Wan & Zhe Zhang, 2009. "Financial intermediations, underwriter reputations and underwriting risks in China's stock market," International Journal of Networking and Virtual Organisations, Inderscience Enterprises Ltd, vol. 6(4), pages 367-378.
    • Handle: RePEc:ids:ijnvor:v:6:y:2009:i:4:p:367-378
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