Side-by-side Chinese-English


赵岩1 孙文琛2

(1.吉林大学商学院, 吉林长春 130012)
(2.中山大学岭南(大学)学院, 广东广州 510275)


【关键词】 券商声誉;机构投资者持股;IPO抑价;


【基金资助】 国家自然科学基金面上项目“基于广义线性函数的随机占优统计推断与证券市场投资者总体偏好”(71371084); 教育部人文社会科学重点研究基地重大项目“基于权力范式的制度变迁理论研究”(15JJD790011); 教育部人文社会科学研究项目“权力与内生化制度变迁的动态均衡研究”(16YJC790096);

‍Broker reputation, institutional investor’s shareholdings and IPO underpricing

ZHAO Yan1 SUN Wenchen2

(1.Business School of Jilin University, Changchun, Jilin Province, China 130012)
(2.Lingnan (University) College of Sun Yet-Sen University, Guangzhou, Guangdong Province, China 510275)

【Abstract】Initial public offering (IPO) is an essential way for companies to obtain external capitals and raise brand awareness. A successful IPO can enable companies to attract suitable investors. In this way, the company finds it easier to raise the necessary capitals and enhance the visibility of the enterprise, the staff’s sense of identity and the enterprise system. But at the same time, improper operation of the IPO will bring more serious negative impact on the companies. In this case, the enterprise cannot raise the needed capitals, and may also be examined and dealt with by China Securities Regulatory Commission and other relevant authorities. IPO underpricing refers that the IPO issue price is lower than the market price of the initial market situation. In the actual process, whether it is the Western developed capital market or the emerging financial markets, the IPO underpricing is widespread. In the case of IPO underpricing, the new shares will receive the excess return. As a phenomenon contrary to the efficient market hypothesis, IPO underpricing means that the actual amount of capital raised by the enterprise is lower than the expected value. So the issuing companies bear the expensive hidden cost. This not only makes the issuing companies fail to hit the expected funding target, but also leads the investors to pursue the excess returns of IPO underpricing. This will lead to the capital mismatch between the primary market and the secondary market, and reduce the operational efficiency of the capital market. High underpricing will lead to insufficient supply of capitals of the secondary market and lower share price. In view of the adverse effects of IPO underpricing and the general degree of IPO underpricing in capital market, the formation mechanism of IPO underpricing phenomenon has been a hot issue in the field of IPO theory. The institutional investors have become an important signal to measure the maturity of the financial market. Compared with individual investors, the institutional investors tend to adhere to the concept of value investment. They focus on the company’s intrinsic value of rational investment rather than speculative profit. And after the success of obtaining IPO shares, they will not be sold in the short term. This behavior is conducive to the long-term stable performance of the company after IPO. In addition, institutional investors have more private information about the market demand for new shares compared with the broker and the issuing company. Brokers use book-building mechanism to get the advantage of institutional investors’ information, so as to improve the effective information content of the stock price, which will promote the success of pricing. Since the second half of 2016, China Securities Regulatory Commission has further strengthened the management of brokers. They pointed out that the brokerage agencies failed to play the role of market gatekeeper during abnormal fluctuations of stock market in 2015. China Securities Regulatory Commission pays more and more attention to the role of brokerage in the securities market. By the specialty of the underwriting business, brokers play an important role in the public release process. Brokers assume the intermediary role of the underwriting, which needs to compile the prospectus and take a road show. The securities firms also need to accurately assess the value of company in order to develop a reasonable issuing price. In order to ensure the success of the IPO, high quality and experienced brokers are widely favored by the issuing company. Reputation can be seen as a signal of brokerage business capabilities. For institutional investors, their private information must be through the broker’s book-building process to be able to get play. The broker with high reputation has excellent ability to control the market demand and the capabilities of information conversion. They are able to more fully extract and analyze the effective information in the hands of institutional investors to adjust and modify the IPO pricing. In this way, the high reputation of brokers can indirectly inhibit the IPO underpricing. Based on the background of Chinese IPO market, using data of A-share listed companies in Shanghai Stock Exchange and Shenzhen Stock Exchangeduring 2003–2015 in China, we investigated the relation among underwriter reputation, institutional shareholdings and IPO underpricing. We also analyzed the time effect of IPO underpricing. In the part of the empirical design, we take the market-adjusted first day stock returns as the proxy variable to measure IPO underpricing. The result showed that the more institutions hold, the lower IPO underpricing is when controlling other factors. Besides, when the key underwriter has higher reputation, the significant impact of institutional shareholdings on IPO underpricing is stronger. We proved the moderator role of underwriter reputation in the relation between institutions and IPO underpricing. Thus, we provided some empirical evidence backing the crucial role of institutions in financial markets as well as some policy suggestions on how to regularize the behavior of institutions after the establishment of registration system for IPOs.

【Keywords】 broker reputation; institutional investor’s shareholdings; IPO underpricing;


【Funds】 General Project of National Natural Science Foundation of China (71371084); Major Project of Key Research Base for Humanities and Social Sciences, the Ministry of Education (15JJD790011); Project of Humanities and Social Sciences Research, the Ministry of Education (16YJC790096);

Download this article

    [1] Aggarwal R, Prabhala N R, Puri M. Institutional Allocation in Initial Public Offerings: Empirical Evidence. The Journal of Finance, 2002, 57, (3): 1421–1442.

    [2] Allen F, Faulhaber G R. Signaling by Underpricing in the IPO Market. Journal of Financial Economics, 1989, 23, (2): 303–323.

    [3] Baron D P. A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues. The Journal of Finance, 1982, 37, (4): 955–976.

    [4] Beatty R P, Ritter J R. Investment Banking, Reputation, and the Underpricing of Initial Public Offerings. Journal of Financial Economics, 1986, 15,(1): 213–232.

    [5] Beatty R P, Welch I. Issuer Expenses and Legal Liability in Initial Public Offerings. Journal of Law and Economics, 1996, 39, (2): 545.

    [6] Benveniste L M, Spindt P A. How Investment Bankers Determine the Offer Price and Allocation of New Issues. Journal of Financial Economics, 1989, 24,(2): 343–361.

    [7] Boulton T J, Smart S B, Zutter C J. Earnings Quality and International IPO Underpricing. The Accounting Review, 2011, 86, (2): 483–505.

    [8] Carter R, Manaster S. Initial Public Offerings and Underwriter Reputation. The Journal of Finance, 1990, 45, (4): 1045–1067.

    [9] Chemmanur T J, Fulghieri P. Investment Bank Reputation, Information Production, and Financial Intermediation. The Journal of Finance, 1994, 49, (1): 57–79.

    [10] Chemmanur T J, Hu G, Huang J. The Role of Institutional Investors in Initial Public Offerings. Review of Financial Studies, 2010, 23, (12): 4496–4540.

    [11] Dimovski W, Philavanh S, Brooks R. Underwriter Reputation and Underpricing: Evidence from the Australian IPO Market. Review of Quantitative Finance and Accounting, 2011, 37, (4): 409–426.

    [12] Hanley K W, Wilhelm Jr W J. Evidence on the Strategic Allocation of Initial Public Offerings. Journal of Financial Economics, 1995, 37, (2): 239–257.

    [13] Johnson J M, Miller R E. Investment Banker Prestige and the Underpricing of Initial Public Offerings. Financial Management, 1988, 17, (2): 19–29.

    [14] Kirkulak B, Davis C. Underwriter Reputation and Underpricing: Evidence from the Japanese IPO Market. Pacific-Basin Finance Journal, 2005, 13, (4): 451–470.

    [15] Ljungqvist A P, Jenkinson T, Wilhelm Jr W J. Global Integration in Primary Equity Markets: The Role of US Banks and USInvestors. Review of Financial Studies, 2003, 16, (1):63–99.

    [16] Loughran T, Ritter J R. Why Has IPO Underpricing Changed Over Time?. Financial Management, 2004, 33, (3): 5–37.

    [17] Megginson W L, Weiss K A. Venture Capitalist Certification in Initial Public Offerings. The Journal of Finance, 1991, 46, (3): 879-903.

    [18] Michaely R, Shaw W H. The Pricing of Initial Public Offerings: Tests of Adverse-Selection and Signaling Theories. Review of Financial Studies, 1994, 7,(2): 279–319.

    [19] Rock K. Why New Issues are Underpriced. Journal of Financial Economics, 1986, 15, (1):187–212.

    [20] Zhou Z, Zhou J. Chinese IPO Activity, Pricing,and Market Cycles. Review of Quantitative Finance and Accounting, 2010, 34, (4): 483–503.

    [21]Bo,, X. & Wu, L. Economic Research Journal (经济研究), (02) (2009).

    [22]Chen, S. . Journal of Financial Research (金融研究), (05) (2010).

    [23] Guo,, H. & Zhao, Z. Management World (管理世界), (3) (2006).

    [24] He, Y. Economic Science (经济科学), (6) (2011).

    [25] Li, Y. Business Economy (商业经济), (04) (2010).

    [26] Qiu, D., Chen, L. & Meng, W. Accounting Research (会计研究), (10) (2010).

    [27] Qiu, D. & Du, S. Journal of Chongqing University of Technology(Social Science) (重庆理工大学学报(社会科学)), (05) (2015).

    [28] Shao, X. & Wu, H. Management World (管理世界), (10) (2009).

    [29] Song, S. & Tang, S. Accounting Research (会计研究), (02) (2016).

    [30] Wang, C. & Ye, R. Collected Essays on Finance and Economics (财经论丛), (06) (2014).

    [31] Wang, G., Ren, H. & Lei, W. Journal of Chongqing University of Technology(Social Science) (重庆理工大学学报(社会科学)), (06) (2015).

    [32] Wang, J. & Wang, P. On Economic Problems (经济问题), (02) (2008).

    [33] Xu, H., Cheng, X. & Chen, C. Journal of Financial Research (金融研究), (10) (2009).

    [34] Yu, F. & Wang, C. Journal of Financial Research (金融研究), (09) (2012).

    [35] Yu, H. Economic Science (经济科学), (1) (2006).

    [36] Zeng, J. & Yang, K. Research on Economics and Management (经济与管理研究), (05) (2010).

    [37] Zhang, Q. & Zhang, B. Securities Market Herald (证券市场导报), (12) (2011).

    [38] Zhang, Y. Journal of Science (理论学刊), (8) (2015).

    [39] Zheng. X. & Yang, S. Economic and Management Research (经济与管理研究), (6) (2007).

    [40] Zhu, K., Tian, S. & Yang, Z. China Accounting Review (中国会计评论), (02) (2007).

This Article


CN: 11-1047/F

Vol 38, No. 12, Pages 112-131

December 2016


Article Outline


  • 1 Introduction
  • 2 Literature review
  • 3 Theoretical analyses and assumptions
  • 4 Empirical research design
  • 5 Empirical analysis
  • 6 Major conclusions and policy recommendations
  • References