Underwriter,Venture Capital And Stock Issuance

This paper focuses on underwriter,venture capital and corporate stock issuance,and these three aspects are interrelated.First of all,one of the contents of this paper is to explore the relationship between underwriter reputation depreciation and initial public offering(IPO).In the initial public offering process,issuing companies know more about their own operating performance,cash flow distribution,financial situation,and so on,so that they know more than external investors.At the same time,the high cost of information searching,screening and processing by investors aggravates the degree of information asymmetry between these two.As professional information producer and independent value authenticator,the existence of underwriters provides an effective solution to alleviate information asymmetry in the process of IPO.As far as information production is concerned,underwriters can use the advantages of economies of scale to collect,screen and integrate a large amount of information efficiently,thus reducing the repeated information collection and processing work of investors;While value certification is concerned,companies employ better-reputable underwriters as independent third-party institutions to prove that issue price is unified with the intrinsic real value.In Chinese capital market,with the reform of the issuance and examination system and the weakening of the regulation of the SFC,the importance of underwriters is increasing.Therefore,it is necessary to pay attention to the influence of underwriters on the issuance of corporate stock.Undeniably,underwriters do play an important role in the process of securities issuance,and the consequent question is,how can the credibility of underwriters' production and certification information be guaranteed when underwriters may assist unqualified companies in issuing and listing in order to obtain higher underwriting costs? Even though the underwriters do not have the opportunistic behavior to assist the enterprises to make fakes,the issuance of securities itself is very complex and elaborate process,professional underwriters also have the possibility of evaluation errors,then how can investors judge the accuracy of the information obtained? In these two cases,the reputation of underwriters is particularly important.Because reputation is not only a comprehensive record of underwriters' past underwriting behavior,but also a commitment and guarantee to the quality of their services.Investors can judge the professional ethics of underwriters,the quality of service and the accuracy of the information they provide by virtue of their reputation.There have been a huge number of studies adopting two indicators to measure underwriters' reputation: the ranking of tombstone announcements and market share.It is noteworthy that although these two indicators are closely related to the reputation of underwriters,they are both indirect indicators,to a certain extent there are deviations.In other words,a top-ranked,market-share underwriter is not necessarily a reputable underwriter.In China,market share does not equal the reputation of underwriters accurately.As an emerging market,Chinese capital market has the dual characteristics of policy-oriented and economic restructuring.Underwriters' market share is not entirely formed in the pattern of market competition.It may be caused by non-market competition factors such as administrative regulation and monopoly.Therefore,there may be some deviations to measure the reputation of Chinese underwriters by market share.Therefore,there is still a lack of an indicator that can directly judge the reputation of underwriters.The first research content of this paper aims to fill this gap.Secondly,the second part of this paper is to explore the relationship between underwriter switch and the performance of the company's seasoned equity offering(SEO).In Chinese capital market,equity refinancing is far more than the initial public offering in terms of both the amount and frequency.We have counted the equity financing of listed companies from January 2000 to August 2018: according to Wind,4495 equity refinancing were raised from 2000 to 2018,and the total amount of capital raised was 8110,323 billion yuan,compared with 2705 IPOs,and total 2750.782 billion yuan raised by IPO.From January to August,2017,the number of equity refinancing has reached 233 times,with a quota of 658.559 billion yuan,while the IPOs are 81 and 108.024 billion yuan.SEO is becoming more and more important for the long-term development of companies.In contrast,the research on SEO of Listed Companies in China is far from in-depth study on IPO in both theoretical and empirical aspects.Therefore,the research on SEO has become an increasingly urgent link in the research of corporate equity issuance.Unlike initial public offerings,companies face a choice in SEO: to continue hiring underwriters at IPOs or to use a new underwriter.Rehiring an underwriter means that the underwriter re-underwrites the securities of the same company,rather than switchcing the underwriter.This will be more conducive to playing its role of certification in the underwriting process.At the same time,the original IPO underwriters may refuse to underwrite the additional shares issued by poorly qualified listed companies concerning their reputation.Therefore,whether or not the IPO underwriters will switch during SEO is a result of the game between the two sides.This paper will theoretically and empirically study whether to change underwriters when equity refinancing of listed companies,and the impact of underwriter switch on the performance of the capital market of listed companies.Finally,the third part of this paper is to study venture capital,IPO and SEO.As a special equity investment,venture capital is not only related to the financing problems and technological innovation of start-ups,but also important to the transformation and upgrading of the whole economic structure and the sustained and rapid development of the economy.Take the United States for example,the explosive growth of venture capital between 1970 and 2000 created 7.6 million jobs for the United States,and the employment growth rate of venture capital-supported enterprises was significantly higher than that of non-venture capitalsupported enterprises;the sales,taxes and exports of venture capital-supported enterprises were respectively venture-free enterprises by twice and three times.Our government has realized the importance of venture capital.In mid-1980 s,our government put forward the policy of supporting venture capital and continuously guided it.Although limited by the imperfection of Chinese capital market,China's early development of venture capital is slow,but thanks to the creation of small and medium-sized board and GEM,venture capital has been rapidly developing,raising from 18.2 billion US dollars in 2006 to 44.901 billion US dollars in 2016.The development of China's venture capital industry has provided a channel for innovative venture enterprises to support capital and integrate resources,promoted the rapid growth of enterprises,incubated a large number of high-quality listed companies,such as Baidu,Alibaba and Tencent,and even spawned a new industry.At the same time,doubts for the value of Chinese venture capital have also been heard.Contradictions between venture capitalists and their founders have led to the struggle for corporate control and business chaos.From CDH investments in Nanfu batteries and South Beauty,Bain Capital investments in Gome Electric,Goldman Sachs and Softbank investments in Reiss Lighting,as well as CVC,Europe's largest private equity fund,investing in dumplings,and so on.Chinese venture capital is not a simple replica of the American venture capital industry,venture capital is not only to play a single role of value-added in the growth of the company.Existing studies mainly focus on the role of initial public offerings to study the role of venture capital.At present,few academic papers have extended the perspective from initial public offerings to SEO to study the performance of venture capital,IPO and SEO.Based on this,the third content of this paper is to explore the impact of venture capital on the choice of SEO after IPO.What are the discount rates for those companies which have implementedSEO as soon as possible after IPO? What is its long-term market performance? What role does venture capital play in it? These are the three question answered in the paper.To sum up,the overall structure of this article can be understood as a core and three aspects.The core is to reveal the role played by underwriters and venture capital in stock issuance.Three aspects focus on the relationship between three things underwriter reputation depreciation and IPO,underwriter switch and SEO,venture capital and SEO.First,relationship between underwriter reputation and company IPO performance.This paper traces back to come into effort of Securities Law of the People's Republic of China in 1999,and manually collects samples of IPO fraud in the past 15 years.Technically,how to accurately judge the reputation of underwriters constitutes is the key of this part.Firstly,this paper judges the underwriters' reputation from horizontal and vertical dimensions,and then use the double difference model to further test the robustness of the results:(1)For the listed companies whose underwriters are exposed to be fraudulent,this paper matches the listed companies whose underwriters are not fraudulent by propensity score matching method,with emphasis on comparison between two group date.(2)The boundary between good underwriters and bad underwriters is disclosure of forgery.(3)This paper uses the double difference model to test whether the impact of underwriter reputation on the first day underpricing rate and longterm return rate of listed companies exist.In this paper,we find that good reputation underwriters do have better certification effect.The specific performance is as follows:(1)compared with those underwriters who have not been disclosed to underwrite IPO fraud companies,underwriters who underwrite IPO fraud companies have a higher IPO underpricing rate.Long term returns on stocks are lower.(2)For the same underwriter,the IPO performance of the company underwritten by the underwriter after the disclosure(reputation damage)is significantly higher than that of the company underwritten by the underwriter before the illegal disclosure of the IPO.(3)The results based on the double difference model still support the above conclusion,which shows that compared with the traditional underwriter reputation index,the reputation index based on IPO fraud is more effective.Secondly,relationship between switch of underwriters and SEO.This paper aims at theory and practice.Theoretically,this paper establishes a repeated game model between issuing companies and underwriters to study how companies and underwriters will choose the other party in multiple games.Empirically,this paper first verify the decision-making of listed companies and underwriters,and then explores the impact of renewal of IPO underwriters on short-term performance(discount rate)and long-term performance(stock return rate)after SEO.Theoretical models show that firms with good quality and poor quality tend to choose high reputation underwriters when there is a serious degree of information asymmetry between underwriters and issuing firms,and high reputation underwriters will not continue the business in order to maintain their own reputation when issuing firms and IPO underwriters have a better understanding of each other's situation and find that the company have low quality,then poor quality companies only employ can only employ low reputation underwriters.Empirical results are consistent with the theoretical model.Empirical results show that there is no significant difference in the reputation of underwriters employed by replacement group companies and non-replacement group companies in IPO,while the reputation of underwriters employed by replacement group companies in equity refinancing deteriorates significantly.At the same time,the performance of underwriters' IPO affects the company's decision to replace underwriters.Further research shows that firms without changing underwriters are able to obtain lower discounts and higher long-term stock returns on SEO than firms changing underwriters.This result is robust in many tests.Thirdly,the performance of venture capital,IPO and corporate SEO.The purpose of this paper is to determine what kind of companies will promptly implement SEO after IPO.Then,this paper will further judge the discount rate and long-term return performance of those companies which SEO as soon as possible,and judge the impact of venture capital on corporate value by answering these questions.The empirical results show that:(1)firms supported by venture capital and firms with lower IPO underpricing will choose to implement SEO more quickly;(2)firms with faster SEO after listing will have higher SEO discount rate;(3)firms with faster equity refinancing after listing will have worse long term market performance.This shows that in order to achieve capital withdrawal,venture capital-backed companies will first divest high-quality assets to achieve the purpose of listing,at this time the IPO underpricing rate of the company is also lower.After listing,venture capital hopes to maximize the benefits of divested inferior assets through equity refinancing,which is manifested by higher discount rate of equity refinancing and worse long-term market performance after equity refinancing.