Determinants of Underwriter Participation in Initial Public Offerings of Common Stock: An Empirical Study

This paper examines an optimal underwriter participation model and develops testable hypotheses regarding the influence of certain factors on the degree of underwriter participation in initial public offerings (IPOs) of common stock. The issue of underwriter participation is important primarily due to the tradeoff between foregone underwriter compensation and underwriting risk reduction. The results of this paper indicate that factors related to the issue, issuing firm, underwriter, and IPO market conditions all are important determinants of the participation decision. Interestingly, the results also show that the importance of these factors is not consistent across underwriter prestige groups. In particular, factors external to underwriters (e.g., the issuing firm and market characteristics) are more important for explaining nonprestigious underwriter participation, while factors related to underwriters themselves play a more important role for explaining prestigious underwriter participation.     

IPO定价与抑价发行治理

创业板开闸以来出现高市盈率、高发行价、高超募和高抑价率并存现象,对新股发行制度改革尤其是IPO定价效率提出了新的要求。本文通过IPO定价与股票估值之间固有区别的比较,提出了一个更为实用的估价函数,根据平价发行条件得出一个以发行前每股净值、发行比例、EPS和EPS增长率为因子的平价定价模型。必然抑价点的存在,证明特殊市场条件下以行政指导定价和市场自由化定价对抑价发行治理完全无效。进而指出治理IPO抑价是一个需要恰当制度安排、通过市场机制作用对投资情绪进行纠正、引导和培育的长期过程,并给出IPO定价市场化和合理化的几点建议。     

Underpricing and long-run performance of Chinese IPOs: the role of underwriter reputation

This study examines the impact of underwriter reputation on IPO underpricing and long-run performance in the China stock market over the period 2001 to 2006. This sample period is notable for the implementation of a verification and approval system that occurred during it, which provided underwriters more freedom to price IPOs. We develop two alternative proxies to measure underwriter reputation based on either the ratio of the total gross proceeds raised or the number of IPOs managed by each underwriter. We find that underwriter reputation does not affect the level of underpricing, but that the level of long-run underperformance is significantly mitigated when IPOs are managed by more prestigious underwriters.     

新股发行机制、投资者乐观情绪与IPO高抑价

固定价格、累计投标询价和拍卖发行机制下的IPO抑价模型可解释我国新股发行市场长期存在的高抑价现象:散户投资者对新股发行的乐观情绪会推高二级市场的IPO交易价格,但却不能在IPO发行定价中得到完全体现。单纯通过变革新股发行机制并不能够从根本上抑制IPO高抑价产生,只有疏导散户投资者的乐观情绪才能彻底解决IPO高抑价问题,权宜之策是将散户投资者的乐观情绪嵌入IPO发行定价之中以消除IPO高抑价现象,允许散户投资者参与询价可以有效缓解这一现象,且具有可操作性。     

Great expectations: Banks as equity underwriters

We examine the in-roads commercial banks have made into equity underwriting over 1990–2002. While banks end the period handling upwards of 25% of equity underwriting, this increase results almost exclusively from acquisitions of investment banks with an already established market share of equity underwriting. We find a significant decline in the market share of equity underwriting that banks acquired in the post-merger period, a decline that is larger than that experienced by independent investment banks of comparable reputation. Banks lose market share because they originate fewer IPOs and their IPOs have a lower incidence of follow-on SEOs compared to independent investment banks. Following the merger, banks experience a large fall off in their ability to retain follow-on SEOs and are less successful in winning SEO mandates when an issuer switches from its IPO underwriter. Overall, the findings suggest it has been difficult for banks to achieve scope economies in equity underwriting.     

Is Underwriter Retention of IPO Shares a Good Substitute for Underwriting Spreads?

In Taiwan, underwriters are required to retain at least 10 percent but no more than 25 percent of underwritten initial public offering (IPO) shares and sell the remainder to the public. We find that IPO underpricing causes underwriters to retain more shares to earn capital gains on retained shares and that underwriter retention is a signal of IPO underpricing. If underwriter retention is cancelled, underwriters need to be compensated through lottery draw processing fees or underwriting spreads. We show that issuers should compensate underwriters through underwriting spreads directly, rather than indirectly through underwriter retention or lottery draw processing fees.     

Underwriter reputation and IPO underpricing: The role of institutional investors in the Chinese growth enterprise market

This paper investigates the effects of underwriter reputation on initial public offering (IPO) underpricing in the Chinese Growth Enterprise Market, in light of the conflicting evidence in the literature on IPO underpricing. Using data during the post global financial crisis period, we find that IPO firms with prestigious underwriters have lower market-adjusted initial returns on average. We further find that prestigious underwriters reduce IPO underpricing by minimizing the time gap between the offering and listing, choosing high-quality firms to underwrite, and reducing information asymmetry between issuers and investors. In the presence of institutional investors, however, we find that more underpricing occurs, as these investors tend to obtain access to IPO shares at a higher price discount via private placements. This new finding suggests that the institutional investors have a role to play in the case of high under-pricing, which partly gets corrected via underwriter reputation.     

Securities regulation and implicit penalties

The extant literature offers extensive support for the significant role played by institutions in financial markets, but implicit regulation and monitoring have yet to be examined. This study fills this void in the literature by employing unique Chinese datasets to explore the implicit regulation and penalties imposed by the Chinese government in regulating the initial public offering (IPO) market. Of particular interest are the economic consequences of underwriting IPO deals for client firms that violate regulatory rules in China’s capital market. We provide evidence to show that the associated underwriters’ reputations are impaired and their market share declines. We further explore whether such negative consequences result from a market disciplinary mechanism or a penalty imposed by the government. To analyze the possibility of a market disciplinary mechanism at work, we investigate (1) the market reaction to other client firms whose IPO deals were underwritten by underwriters associated with a violation at the time the violation was publicly disclosed and (2) the under-pricing of IPO deals undertaken by these underwriters after such disclosure. To analyze whether the government imposes an implicit penalty, we examine the application processing time for future IPO deals underwritten by the associated underwriters and find it to be significantly longer than for IPO deals underwritten by other underwriters. Overall, there is little evidence to suggest that the market penalizes underwriters for the rule-violating behavior of their client firms in China. Instead, the Chinese government implicitly penalizes them by imposing more stringent criteria on and lengthening the processing time of the IPO deals they subsequently underwrite.     

Friends can help: The effects of relationship in the Chinese book-building process

Using detailed bidding information in Chinese IPO book-building process, we find that institutional investors who have a close relationship with the underwriter are more likely to participate in bidding and their bidding prices are higher, compared to other institutional investors. We also find that related institutional investors bid higher when the underwriter is more likely to need or receive their support. Further analysis suggests that related institutional investors gain some benefits for their support to the underwriter, including receiving more shares in profitable IPOs, better timing their exit from the IPO in the open market, and receiving more optimistic earnings forecasts or stock recommendations from analysts of the underwriter. Regarding the economic consequence, we show that the underwriter is more likely to revise the offer price upward if related institutions bid higher. The evidence overall indicates the existence of relationship-driven bidding in the Chinese book-building process.     

Underwriter Spread, Underwriter Reputation, and IPO Underpricing: A Simultaneous Equation Analysis

This paper studies the relationships between underwriter reputation, underwriter spread, and IPO underpricing. We consider the information content of underwriter spread and find that it conveys information pertinent to IPO quality. Because underwriter spread is endogenous, underpricing and underwriter spread are jointly determined in a simultaneous equation system. Also, we examine the IPO market for evidence of segmentation, and our results suggest some market segmentation. Underwriter spread impacts initial underpricing for a group of medium-reputation underwriters, while underpricing affects underwriter spread for groups of low- and high-reputation underwriters. Consequently, high-risk IPOs may not be priced the same way as low-risk IPOs. We attribute this finding to regulation, competition, and/or market segmentation.     

Universal Banking, Asset Management, and Stock Underwriting

This paper examines institutions that underwrite IPOs and have asset management divisions from 1993 through 1998. We provide evidence that these firms use asset management funds as vehicles to help them earn more equity underwriting business. We also show that asset managers affiliated with IPO underwriters use their superior information about their own institution's IPOs to earn annualised market adjusted returns 7.6% above asset managers of firms who did not underwrite the IPO. Superior future returns by asset managers who trade affiliated IPOs are dependent on the information environment for the IPO and the underwriter reputation rank.     

Two‐Sided Matching: How Corporate Issuers and Their Underwriters Choose Each Other

In this article, the authors update and confirm the findings of a 2005 article that was the first to view corporate underwriter choices as the outcome of a two‐sided matching process in which issuers look to the abilities of the underwriters offering their services and underwriters focus on the quality of the issuers that wish to use their services. This view offers a contrast with both the conventional representation of issuer‐underwriter associations as one‐sided decisions (by either issuers or underwriters) and the classical economist's representation of a competitive market in which prices serve as the primary market‐clearing mechanism. In their examination of both initial public offerings (IPOs) and seasoned equity offerings (SEOs) during the period 1980–2010, the authors continue to find strong evidence that higher‐quality issuers associate with more reputable underwriters and lower‐quality issuers match with lower reputation underwriters. Moreover, when examining cases of underwriter switching between an IPO and SEOs by the same issuer, they find that cases involving the largest divergence in the relative rankings of issuer and underwriter were the most likely to produce a change of underwriter—and that issuers that experienced larger post‐ IPO increases in quality were more likely to find more reputable underwriters for their SEOs (than for their IPOs). The authors also find that the larger the number of offerings brought to market in a given year, the smaller the market share of the top‐tier underwriters, likely reflecting the willingness of the most reputable underwriters to turn down business to maintain quality and reputation. Finally, the most reputable underwriters appear to benefit from the fact that the issuers whose IPOs they underwrite end up raising larger amounts of capital, both at the time of the IPO and in the larger and more frequent seasoned offerings by such issuers that come after the IPO. This evidence in support of two‐sided matching suggests that, especially for high‐quality issuers, the reputation of the underwriters they contract with for security offerings is likely to be more important than the underwriting fees they incur. What's more, the authors' finding that the most reputable underwriters are less likely to lose high‐quality clients and have more stable market share—and that the higher‐quality issuers they attract end up raising larger amounts of capital over their lives as public companies—suggests that underwriters' investments in building and preserving their reputations have a large expected payoff.     

IPO市场承销商声誉机制的形成机理及实证检验

本文认为，考虑到中国IP0市场的特殊背景，承销商声誉的形成高度依赖于证券监管力量。本文实证结果显示，中国IPO市场承销商声誉的阶段性积累虽已初具雏形，但并没有形成明朗的分化，承销商声誉机制在一定程度上仍处于缺位状态。制度的市场化改革取向和外部约束力量的增强，是中国承销商声誉阶段演进的动力。同时，IPO市场上监管制度的缺陷以及由此导致的监管效率低下、市场约束机制弱化，是阻碍承销商声誉阶段性推进的主要原因。     

Simultaneous effects of clustering and endogeneity on the underpricing difference of IPO firms: A global evidence

This paper provides the first empirical examination of the Entrepreneurial Wealth Losses (EWL) theory in explaining the global underpricing difference while simultaneously accounting for various clustering effects on the endogenous underwriter-underpricing relationship. We carefully evaluate the effect of clustering in standard errors within years, industries, countries, and developed versus developing countries. Employed here is a large global dataset comprising 10,212 IPO-issuing firms from 22 developed and developing countries between 1995 and 2016. Our 2SLS results provide strong evidence relating the existence of dispersion in underpricing in the global IPO market to the three dimensions of the EWL theory. When the degree of ex-ante uncertainty surrounding the time of offering is high, results show that in countries with a high level of IPO underpricing, issuers sell less secondary shares, create less primary shares, and employ less reputable underwriters. After adjusting for the clustering effect, the EWL model fails in cross-country settings and in developing stock markets while it succeeds in developed ones. This is due to the failure to capture the endogenous underwriter reputation-underpricing relationship. We show how ignoring one- and two-way clustering effects in the IPO data influences results. The validity of the EWL model particularly the statistical significance of the endogenous underwriter reputation-underpricing relationship vanishes based on the way we cluster our standard errors. Instead, we uncover conclusive evidence supporting the spinning behavior rationale where prestigious underwriters in developing equity markets burden IPO firms with a hefty underwriting fee. Sequentially, they leave big amounts of money on the table for investors to cash it out at the expense of issuers. Entrepreneurs in developing nations appear not to be concerned by this spinning practice, because they care little about their wealth losses in exchange for securing successful offering. Policy-wise, the paper provides several practical contributions.     

IPO限价发行与新股二级市场价格泡沫——论股票市场“弹簧效应”

本文通过对比2009年7月1日至2014年6月30日IPO市场化定价发行阶段与2014年7月1日至2018年6月30日IPO限价发行阶段共1950个IPO样本,发现IPO限价发行对于新股在二级市场股价表现具有“弹簧效应”:即抑制股票一级市场发行价格会造成新股在二级市场价格短期内超涨,限价发行新股的二级市场定价显著高于市场化定价发行新股的二级市场定价。限价发行引起的过高二级市场定价最终导致股票长期回报率低下。另外,创业板公司“弹簧效应”显著强于主板公司。这些实证结果都可以被本文提出的一级市场价格压抑造成二级市场非理性投资者上涨预期一致、盲目追涨的理论模型所解释。本文的研究指出抑制股票一级市场定价虽然形式上可以解决新股发行价过高问题,但是却造成二级市场更大的价格扭曲。这一发现为进一步完善我国IPO发行定价机制提供了依据。     

The impact of bank entry in the Japanese corporate bond underwriting market

The 1993 Japanese financial system reform allowed banks to enter the underwriting market for corporate bonds through bank-owned security subsidiaries. This paper examines empirically whether underwriting commissions and yield spreads on corporate straight bonds issued domestically fell as a result of this bank entry. The empirical results show that bank entry significantly lowers both underwriting commissions and yield spreads. Commissions charged by banks are significantly lower than those charged by investment houses. Lending and shareholding relationships between the issuer and underwriter are not important in determining commissions or yield spreads.     

首日涨停板制度与IPO解禁效应——基于投机泡沫视角的分析

本文以2006—2016年上市的1397家公司为研究样本,实证检验了首日涨停板制度对新股解禁效应的影响。结果发现:首日涨停板制度实施期间发行的新股,解禁时有显著更差的市场表现,[-30,30]窗口期间的超额回报低至-8.43%,同时有更小的异常交易量和异常波动率;新股上市时股价高估程度越大、投资者情绪越高,首日涨停板制度对解禁效应的影响越强。上述结果支持了Hong et al.(2006)提出的“解禁与资产泡沫破灭”的理论,即首日涨停板制度导致新股发行后投机泡沫累积,投机泡沫破灭导致解禁时更大幅度的股价下跌。本文的研究结论补充了首日涨停板制度后果的文献,并对防范金融风险和完善新股市场化改革具有一定的政策参考价值。     

主承销商的买入推荐可信吗?——来自中国的证据和启示

以2004-2009年的A股IPO公司为样本,我们探讨主承销商分析师买入推荐的可信性问题。我们的研究表明,在市场表现较差时,主承销商分析师倾向于给出买入推荐。此外,相对于主承销商,市场更相信其他券商分析师给出的买入推荐。我们还发现,其他券商分析师也能够识别主承销商买入推荐所包含的乐观性偏差。我们的这一结论为主承销商分析师所面临的利益冲突问题提供了直接证据,不仅有助于投资者更好地进行投资决策,也有利于监管当局对证券分析师行业对症下药,从而更好地保护投资者利益。     

AN ANALYSIS OF THE UNDERWRITER SELECTION PROCESS FOR INITIAL PUBLIC OFFERINGS

This study extends previous research that shows prestigious underwriters avoided underwriting smaller, more speculative initial public offerings (IPOs) during a post-SEC period, 1966–77. Estimating a logit model with a sample of 1,192 IPOs from 1977 to 1988, we evaluate the effect of offering characteristics and prevailing market conditions on the probability a prestigious investment banker will underwrite an IPO. Similar to previous studies, we find that prestigious underwriters avoid smaller, riskier issues. However, we also find stock market volatility, interest rate volatility, and the strength and profitability of the recent market for seasoned new issues to be important determinants of a prestigious underwriter's decision to underwrite an IPO.     

Underwriter Reputation,Issuer Ownership,and Pre‐IPO Earnings Management: Evidence from China

This paper investigates the correlation between pre‐initial public offering (pre‐IPO) earnings management and underwriter reputation for issuers with different ownership structures in China. We document a significantly inverse relationship between underwriter reputation and pre‐IPO earnings management for non‐state‐owned enterprises (NSOE) issuers only, while no significant association is found for state‐owned enterprises (SOE) issuers. We also find that for the NSOE new issue market, underwriter reputation is positively correlated with issuer post‐IPO performance indicating that prestigious underwriters can incrementally improve issuer post‐IPO performance.