Correlation Between Accounting Conservatism And IPO Underpricing

Foreign scholars(Boulton、Smart、 Zutter,2011) studied IPO companies for the 37 countries, the results indicate the degree of IPO underpricing is most prominent in China. the arrangement of the magnitude of underpricing, China is 120.7 percent,while Argentina is less than 2 %, the US, Japan and Malaysia, the average initial returns were 33.90%, 55.85%, 34.32%. And IPO underpricing of China’s A-share market is much higher than average. IPO underpricing performance in China: on the first day of stock trading prices tend to rise sharply, or even several times the issue price, resulting in excess yields, many shareholders flourishes. This abnormal high degree of underpricing, has led many scholars studied from various aspects.In the first day of listing, the stock’s trading price often rose, or even several times of the offering price, resulting in abnormal return, many shareholders get rich quickly. Underpricing too obviously is not normal, and on the reasons for underpricing, there have been many scholars examined from all aspects of the research, some scholars believe that the reason of IPO underpricing is rooted in the Chinese characteristics system, some scholars believe that the reason is information asymmetry between issuer and investors, as well as scholars believe that the reason is investors are not rational lead to underpricing. In short, is controversial. So far, most of the domestic research on IPO underpricing is the high IPO underpricing deficiencies associated with China’s securities market,or the issuance system unreasonable and so on exogenous factors,endogenous factors to consider not by much. This paper is from the perspective of corporate governance, research relevance of accounting conservatism and IPO underpricing, as well as its overall impact on the accounting conservatism and IPO underpricing.Based on the theory of asymmetric information theory, we propose agent theory 、 theory of signal transmission and winner’s curse. the This paper proposes two hypotheses. the first: accounting conservatism is negatively associated with IPO underpricing. More conservative, underpricing rate is low. The second: for high quality corporate governance will strengthen the negative correlation between the degree of accounting conservatism and IPO underpricing. The higher the quality of corporate governance, the stronger robustness and lower underpricing. This paper selects A-share IPO and listed companies(excluding the financial industry) from2007 to 2014 as a sample, with the market-adjusted abnormal return for each IPO on the first trading day which we use tomeasure the degree of IPO underpricing, with the cumulative total accrual-based measure of accounting conservatism. Principal Component Analysis concluded that indicators of corporate governance quality, use it to measure the quality of corporate governance, using comparative approach analysis the quality of corporate governance whether affect the correlation between accounting conservatism and IPO underpricing. And select ten control variables which could yet affect IPO underpricing, the last establish the model of regression analysis. Regression results show that the hypotheses are valid, accounting conservatism and IPO underpricing significant negative correlation, the higher the quality of corporate governance can significantly strengthen the negative correlation between accounting conservatism and IPO underpricing.