Let us work together: The impact of customer strategic alliances on IPO underpricing and post-IPO performance |
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| Institution: | 1. School of Economics and Management, University of Science and Technology Beijing, Beijing 100083, China;2. Department of Business Management, National Taipei University of Technology, Taipei 10608, Taiwan;1. University of Reading, Reading RG6 6AH, UK;2. University College London, London WC1E 6BT, UK;1. College of Economics & Management, Huazhong Agricultural University, Wuhan, China;2. School of Accounting, Zhongnan University of Economics and Law, Wuhan, China |
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| Abstract: | Leveraging the availability of three years of pre-IPO data and related vs unrelated-party customer information for Chinese firms, we examine the impact of customer strategic alliances (CSA) on IPO underpricing from 2007 to 2015. Our core findings suggest that IPO firms with CSAs have less IPO underpricing than those without such a relationship. The decrease in underpricing is more salient for IPO firms that have non-related-party customers. Additional analysis suggests that the core findings are primarily driven by firms with good information environment pre-IPO, including high audit quality, high analyst following, and low earnings management. We interpret the results as indicating that a good pre-IPO information environment enhances the credibility of CSA relationships and signals high IPO quality. Furthermore, we document that a CSA relationship has a positive impact on an IPO firm's post-IPO performance, especially when the firm has non-related-party customers. Overall, CSAs reduce IPO underpricing and enhance IPO returns post-IPO. |
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