The Effect Of Institutional Investors On IPO Failure Risk

Listed companies are forced to delist,which would not only affect the firm's financing and reputation,but also directly bring economic losses to investors,and may even cause serious economic crisis and effect the whole society.Therefore,to avoid the waste of resources and the serious economic consequences that are caused from the firm's delisting,it is important to study how to alert company delisting risk.With the rapid development of global financial markets,institutional investors has become one of the most important corporate governance mechanism,because of their monitoring effect.Reasonable corporate governance is conducive to protect the interests of investors,is beneficial to improve the company's operating performance,to ensure the growth of the listed company's economic benefit and long-term development,and reduce the delisting risk.In view of this,it not only has important theoretical value,but also has important practical significance to study the influence of institutional investors on IPO failure risk.Based on the delisting data,this paper studies the effect of institutional investors on IPO failure risk,specifically,the effect of motivated institutions,local institutions and nonlocal institutions on IPO failure risk.This paper further analyzes the monitoring role of different types of institutional investors on corporate governance,and also explains potential reasons behind the IPO failure risk.This studies provide a new theoretical perspective for classification research of institutional investors,provide solutions for a potential delisting risk of IPO firms to find defects and governance problems,provide reference for investors to avoid a potential delisting risk of IPO companies,provide the theoretical reference for the government to alert market crisis in advance and to stabilize the market.The main studying of this paper as follows:First of all,aimed at the question of whether institutional investors can actively participating in corporate governance,this paper analysis the motivation of institutional investors participating in corporate governance from the point of view of cost-benefit analysis of the motivation of institutional investors participating in corporate governance.By establishing the theoretical model,this paper find that institutions participating in corporate governance is not only related to the ownership,but also related to the marginal cost and marginal benefits.Combining the theory of cost-benefit and institutional limited attention hypothesis theory,this paper prove that the greater of the value of the institutional investors hold shares of a firm accounted for the proportion of the institutional total portfolio value,the greater their incentive motivation to monitor this firm.It prove that the classified method of institutional investors based on the limited attention is rational,and provide a new theoretical research perspective for the classification of the institutional investors provide.In addition,in view of the institutional investors tend to choose the supervision of firms in the distance,but not in the local,this paper also presents the reasonable theoretical explanation.Secondly,based on the theory of institutional investors limited attention hypothesis,this paper identify the motivated institutions according to the institutional investors holding shares in proportion to the value of its total portfolio values.The empirical study find that there is a negative correlation between the IPO failure risk and motivated institutional ownership.This research results show that the motivated institutions can actively supervise firm's management behavior,improve corporate governance,improve the firm's performance,and therefore reduce the IPO failure risk.Thirdly,this paper further study the effect of motivated institutional ownership on IPO failure risk under information asymmetry.This paper use the listed exchange,offer date,size and return volatility of IPO firms to measure the information asymmetry between institutions and firms.By establishing a Logistic regression model,the empirical study find that there is a significantly negative correlation between motivated institutions and IPO failure risk for firm's listing on the NASDAQ,firms' listing after the implementation of SOX,firm's with large size and low initial return volatility.But there is no significant correlation between motivated institutions and IPO failure risk for firm's listing on the NYSE/AMEX,firms' listing prior to the implementation of SOX,firm's with small size and high initial return volatility.These results show that when the degree of information asymmetry between investors and listed companies is higher,motivated institutions actively participate in corporate governance,which is help to improve firm's performance and reduce the IPO failure risk.Fourthly,this paper studies these problems whether local institutional investors have information advantages and will monitor the firm's management.By establishing the OLS and Logistic multivariate regression model respectively,the empirical study find that there is no significant correlation between local institutional ownership and IPO firms' stock returns,and there is no significant correlation between local institutional ownership and IPO failure risk.Research findings suggest that the local institutions do not spend most of their effort and cost to collect firm's information nearby regions,also do not monitor the behavior of firm's management.Therefore,local institutional ownership cannot be a good predictor for stock returns and IPO delisting risk.Finally,this paper study the effect of nonlocal institutions on IPO failure risk.By establishing the Logistic multivariate regression model,the empirical study find that there is a significantly negative correlation between nonlocal institutional ownership and IPO failure risk.The results show that,due to the potential business relationship between nonlocal institutions and the firm is relatively less,so they will actively monitor the behavior of the firm's management,which is help to improve the firm's performance and reduce the IPO failure risk.The research findings in this paper provide a new theoretical reference for a potential delisting risk of IPO firms to find defects and governance problems,and provide reference for investors to avoid a potential delisting risk of IPO companies,and provide the theoretical reference for the government policy to develop and attract institutional investors to actively participated in corporate governance,therefore maintain the stable development of the capital market.