An Empirical Study on Investment Bank Prestige and IPO Underpricing under Approval System

In this paper, we study 169 IPO samples after Approval System is brought into effect. On the basis that we compare the degree of IPO underpricing in different underwriters and the underpricing condition between prestigious and non-prestigious underwriters, we go further to make regression analysis of the underwriter prestige and IPO underpricing which they underwrite. Finally we conclude that the offering price marketalization is still very low and the underwriter prestige does system is put into effect. not significantly impact on IPO underpricing after approval

IPO initial returns in China: Underpricing or overvaluation?

This paper separates the amount of IPO underpricing(primary market underpricing) and overvaluation(secondary market overvaluation) from the value of an IPO's initial return to evaluate the relative importance of these two factors and their main determinants. Using data on the IPOs of 948 Chinese firms, we find that average initial returns are 66% and that underpricing and overvaluation are between 14–22% and 44–53%, respectively, depending on the method used to assess firms' intrinsic values. In addition, while both the value of the initial return and the extent of overvaluation are significantly negatively related to post-IPO long-run stock performance, overvaluation can predict post-IPO performance better than the value of the initial return. Value uncertainty in IPOs is positively related to both underpricing and overvaluation, and both the underwriter's reputation and the existence of pricing regulation are positively related to underpricing. Investor sentiment has a positive effect on overvaluation but has no effect or a negative effect on underpricing. Overall, our results suggest that in China overvaluation accounts for a larger proportion of the initial return than underpricing,and that underpricing and overvaluation have different determinants.

Economic freedom and IPO underpricing

This paper examines how the difference in institutional environments constitutes differential IPO underpricing across countries. Using the Heritage Foundation＇s Index of Economic Freedom （IEF） as a proxy for the heterogeneous institutional environment, and a sample of 3728 IPOs from 22 countries and regions over the period 1993--2014, we find that countries with higher economic freedom have significantly less serious IPO underpricing problems. Moreover, we find that among the 10 economic freedom factors covered by theIEF, financial freedom related factors play a more important role in reducing the IPO underpricing problem. Finally, consistent with the market sentiment hypothesis, we find strong evidence that pre-IPO market sentiment influences IPO firstday returns, and that the IPO underpricing problem is less severe when the market is bearish.

Do anti-corruption campaigns affect IPO underpricing?Evidence from a central discipline inspection of the CSRC in China

The system of central discipline inspections has become a key anti-corruption governance tool in China since 2013.This paper investigates the impact of a central discipline inspection of the China Securities Regulatory Commission(CSRC)on initial public offering(IPO)underpricing.We find that IPO firms listed during the inspection period exhibit greater IPO underpricing than those listed outside the inspection period.The reason is the increased focus of the CSRC on maintaining capital market stability,which makes it more inclined to approve IPO firms with lower issue prices during the inspection period compared with other periods.We also find that IPO firms listed during the inspection period have better short-term market performance but poorer long-term returns than those listed outside the inspection period.Moreover,the effect of the anti-corruption inspection on IPO underpricing is more pronounced for non-state-owned enterprises,firms with low-quality auditors and firms located in regions with high corruption.Overall,our paper enriches the literature on IPO underpricing and the economic consequences of the central discipline inspection system.

Does reputation of sponsors matter in IPO?Evidence from Hong Kong

Contrary to other markets where underwriters perform a combined role of underwriting and sponsoring in an Initial Public Offering(IPO),IPO issuers in Hong Kong must appoint at least one sponsor in addition to the underwriters.The spitting of the single role of underwriters into two separate ones offers an ideal setting to disentangle the effects of the two roles and to examine which of the two roles-sponsor or underwriter--is more important in explaining IPO underpricing and initial volatility in the Hong Kong equity market.Interestingly,our findings provide supportive evidence that the sponsor reputation does matter in an IPO and it is even more significant than the underwriter reputation in explaining the IPO underpricing phenomenon.Given the recent high-tech fervor,our research goes deeper to examine specifically the role of sponsors on high-tech firms,with results indicating that the reliance on sponsors is higher for traditional isuers than for technology firms.We further discover that sponsors and underwriters are playing substitution roles rather than complementary roles.In order to examine the regulatory policy impact,our research also compares the role of IPO sponsors before and after the launch of the new sponsor regulatory regime in 2013.The empirical findings lend support to our argument that after the launch of the new regulations,public awareness of sponsors is raised,respect towards more reputable sponsor increases,and thus,the role of sponsors becomes more impotant than before.