Research On The Relationship Between Underwriter’s Reputation, Investor Sentiment And IPO Underpricing

This article uses the "high underpricing phenomenon in China’s IPO market" as an introduction,and explores the effects of underwriter reputation and investor sentiment on IPO underpricing from the perspective of behavioral finance,information economics,financial intermediation theory and reputation models.This paper studies how they act on the IPO underpricing phenomenon by the means of empirical analysis.From the empirical point of view,the above two variables are used to return and interact with each other to explore the interaction mechanism of underwriter reputation and investor sentiment on the IPO underpricing phenomenon.Based on this,this article selects CICC(China International Capital Corporation)as a case to analyze the degree of underpricing between high-reputation underwriters and low-reputation underwriters at the same time period(same investor sentiment),and in different time periods with the same underwriters(Same reputation of the company).Compared with previous studies,this paper uses the PCA method to establish sentiment indicators.This variable can better reflect investor sentiment,which is beneficial to the study of the reasons for IPO underpricing.According to the above theoretical basis and the characteristics of the Chinese market,this article select the IPO company data from January 2014 to September 2019,and refers to the method of Guo Hong to design the underwriter’s reputation variable;refers to the methods of Baker and Wurgler and Song Shunlin to improve the variable design.There are three main empirical conclusions.They are as follows: First,investor sentiment has a positive correlation with the degree of IPO underpricing;second,the reputation of the underwriter can significantly reduce the degree of IPO underpricing;third,the reputation of the underwriter strengthens investor sentiment and increases the degree of IPO underpricing.Afterwards,this article selects CICC as a case,and analyzes the underpricing rates between CICC and different underwriters in the same time period,and the IPO underpricing rates of CICC in different time periods.It is concluded that during the same period of time(same investor sentiment),the underpricing rate of underwriters of high-reputation underwriters is significantly lower than that of low-reputation companies;and at different time periods,the IPO underpricing rates are significantly higher when the market is in a higher mood with the same underwritter.After the above analysis,both from a theoretical perspective,empirical and case perspective,we can see the role and impact of investor sentiment and underwriter reputation on the IPO underpricing rate.Aiming at the impact of investor sentiment on IPO underpricing rates,this article suggests that from the perspective of investor education and investor thresholds,multiple departments’ collaboration to reduce the impact of sentiment in financial markets.Aiming at the underwriter’s reputation,this article proposes to strengthen the rules of industry self-discipline,supervision and fraud punishment to improve the underwriter’s reputation mechanism so as to better play the role of the underwriter’s "certification intermediary" in the IPO market.