The Influence Of Underwriter Reputation On IPO Pricing, The Initial And Long-term Returns——an Empirical Study Of Listed Chinese GEM Companies

In order to reduce the adverse effects of the information asymmetry in the stock market, the underwriters play an important role in the IPO Pricing. Therefore, the IPO companies must be careful when they select their underwriters. The company’s own financial position must be sound and has good development prospects. Besides that, choosing a reputable underwriter will have an important impact on deciding whether it can be a successful listing, raising the funds needed and their long-term gains after the listing. Until March1st,2012, there are over300companies listed for trading successfully since the formal opening of China’s GEM on October30th,2009.Besides there are more and more investors paying their attention to GEM. So the research results of analyzing this part of listed companies in the IPO will provide a lot of guidance to other companies’IPO.This paper reviews not only the asymmetric information technology theory and signaling theory, but also the research findings of domestic and foreign scholars on the reputation of the underwriters. According to those, this paper puts forward up with three hypotheses about the relationship between Underwriter Reputation and Venture IPO pricing, initial returns and long-term returns. This article chooses183companies as sample which listed on the GEM from October30th,2009to March1st,2011to do this empirical research and tries to reveal the relationship between Underwriter Reputation and Venture IPO pricing, initial returns and long-term returns. After data analysis, only one hypothesis has been verified and the other two are not significant. In other words, Underwriters’ reputation has no impact on IPO pricing of start-ups and long-term returns, but it has a significant negative impact on the return of initial start-ups. That means the higher the reputation of the underwriters is, the lower the initial returns of Venture IPO would be.This paper would enrich the domestic research results in these two areas:the reputation of the underwriters and the company IPO. Besides, the research object of this paper has a certain originality and timeliness. Meanwhile, the conclusion of this study would have a certain meaning to companies when they select their own security underwriters.