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The impact of underwriter reputation on initial returns and long-run performance of Chinese IPOs

Lookup NU author(s): Dr Chen Su

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Abstract

This study examines initial returns and subsequent long-run performance of Chinese initial public offerings (IPOs) over the period 2001–2008, with specific emphasis on the impact of underwriter reputation. We develop three proxies for underwriter reputation based on either the registered capital of each underwriter, the relative market share, or the number of all IPOs managed by each underwriter. We find little influence of underwriter reputation on the level of IPO underpricing, but a significantly positive relationship between underwriter reputation and the level of IPO long-run performance, which is meaningful for both academics and professionals. Although the significantly negative three-year market-adjusted buy-and-hold abnormal return suggests a potential loss to investors who hold Chinese IPOs in the long run, investing in IPOs managed by more prestigious underwriters helps mitigate the loss. The results are robust to various checks that control for the problem of endogeneity or correct for cross-sectional dependence of observations in the buy-and-hold abnormal returns.


Publication metadata

Author(s): Su C, Bangassa K

Publication type: Article

Publication status: Published

Journal: Journal of International Financial Markets, Institutions & Money

Year: 2011

Volume: 21

Issue: 5

Pages: 760-791

Print publication date: 01/12/2011

ISSN (print): 1042-4431

ISSN (electronic): 1873-0612

Publisher: Elsevier BV

URL: http://dx.doi.org/10.1016/j.intfin.2011.06.002

DOI: 10.1016/j.intfin.2011.06.002


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