The Study Of The Underpricing Of IPO Based On Underwriter Reputation

The problem of initial public offerings underpricing have been paid attention by many reserchers since it was been observed. And because of the important role of underwriter played in the stock market,its reputation will influence the IPO underpricing. According to foreign literatures, the underpricing of IPO is less severe if it was managed by more prestigious underwriters. With the increasing scale of Chinese stock market, more and more scholars have focused on this phenomenon. So this paper tries to find out the relationship between underwriter reputation and the underpricing of initial public offerings in our stock market. We must find out a suitable underwriter reputation measurement if we want to study the relationship between it and the IPO underpricing. This paper has established a kind of underwriter reputation rank according to foreign literatures and the situation of Chinese stock market.Then this paper has introduced the overall situation of IPO underpricing in Chinese stock market. We find that the underpricing of IPO in our market is more severe than in other stock market, but the rate has decreased gradually. The sample in this study includes324IPOs issued from2002to Dec,2009. The underwriter reputation is the independent variable, and the market-adjusted rate of IPO underpricing is the dependent variable. These empirical tests show that,the hypothesis of underwriter reputation come into existence in Chinese stock market. There may be many factors result in the unsignificient difference of the rate of IPO underpricing which managed by underwriters in different reputation categories and the positive relationship between them. In author’s opinion, the limitation of theissuing and pricing system, and the underwriters’behavior often lack of restriction because of the weakness of reputation mechanism are the main causes. So this paper has also proposed several policy recommendations according to these situations.