The Differential Impact of the Bank-Firm Relationship on IPO Underpricing: Evidence from China

Hao, Xiangchao; Shi, Jing; Yang, Jian

doi:10.2139/ssrn.2206871

Cited by 5 publications

(4 citation statements)

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“…Darmadi and Gunawan (2012) find that the level of underpricing is negatively associated with both board size and institutional ownership in the Indonesian equity market. Hao et al (2014) find that the relationship between banks and companies affects IPO underpricing rates. Chen et al (2015) point out that company ownership affects IPO underpricing.…”

Section: Literature Reviewmentioning

confidence: 94%

IPO underpricing and long-term performance in China: the perspective of price limit policy

Wang¹,

Wang²

2021

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PurposeThe purpose of this paper is to explore how the price limit policy implemented in 2014 affects initial public offering (IPO) underpricing and long-term performance in China.Design/methodology/approachThe data are the IPOs from Shanghai Stock Exchange (SSE) and Shenzhen Stock Exchange (SZSE) between 2004 and 2018. The data are firstly divided into the IPOs before the price limit policy and the IPOs after the price limit policy according to the time of issuance. Then the two groups are divided into 4 subsamples according to the market blocks and the P/E ratio. The authors use multiple regression models to explore the effect of price limit policy in each subsample.FindingsThe first-day price limit system for IPOs is similar to the upward fuse mechanism, the purpose of which is to suppress IPO underpricing. However, this study finds that the policy does not suppress IPO underpricing, but increases the underpricing rate in all subsamples. Besides, the long-term performance in each subsample is different from each other. Main Board stocks’ long-term performance is worse after the policy. The policy makes Small and Medium Enterprise Board (SME Board) and Growth Enterprise Market Board (GEM Board) stocks with high P/E ratios perform better in the long term. For SME Board and GEM Board stocks with low P/E ratios, the policy makes no significant effect.Practical implicationsGood policy intentions may sometimes lead to counterproductive effects. However, since the long-term performance of each subsample is different, it is difficult to judge whether the policy should continue to be implemented or cancelled. Implementing different policies for different subsamples may be a better way to solve this problem.Originality/valueThis paper contributes to the study of IPO underpricing and long-term performance from the perspective of price limit policy.

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Section: Literature Reviewmentioning

confidence: 94%

IPO underpricing and long-term performance in China: the perspective of price limit policy

Wang¹,

Wang²

2021

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“…First, IPO firms can get venture capitalists involved in their IPOs, because venture capitalists are experts who help certify the R&D information reported in the IPO prospectus (Cho and Lee, 2013). Second, similarly, firms should disclose having a relationship (if any) with high credit quality banks, which may help certify the financial health of the IPO firms (Hao, Shi and Yang, 2014). Third, firms should go public in jurisdictions where legal protection is stronger, because strong legal protection can alleviate information asymmetry (such as property rights protection), hence reducing underpricing .…”

Section: Initial Public Offerings (Ipos)mentioning

confidence: 99%

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

2015

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This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals. Abstract This paper uses a survey of Australian Corporate Treasurers to shed light on the gap between the theory and practice of corporate finance in Australia. Seven areas are examined: capital structure, payout policy, cash holdings, initial public offerings, seasoned equity offering, mergers and acquisitions, and corporate governance. We also exploit the Global Financial Crisis to examine the effect of liquidity shocks on a firm's capital structure choices. We then compare our Australian survey results with results from a comprehensive U.S. survey conducted by Graham and Harvey (2001). Our survey shows that the board of directors play the most important role in determining capital structure decisions and that corporate treasurers play the most important role in cash holding decisions. This contrasts with the academic literature that has typically focused on the role of CEO in both capital structure and cash holdings decisions. In addition, our respondents do not view the tax advantage of interest deductibility to be of first order of importance for debt issuance choices, which contrasts with most of the U.S. empirical studies. Finally, we juxtapose the theory-practice perspective, with a review of the most recent five years (2011)(2012)(2013)(2014)(2015) of corporate finance research published in the leading Asia Pacific Basin finance journals.

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“…The opacity of business in China, and information asymmetry are viewed by some as the key impact variables that define the lending relationship (Chang et al, 2009;Cao et al, 2010). But it is not simply the characteristics of the firm that matter, the lending bank's identity influences the lending decision and determines the quality of the bank-firm relationship (Hao et al, 2013).…”

Section: Introductionmentioning

confidence: 99%

Why Do Firms Switch Banks? Evidence from China

Yin

Matthews

2018

Emerging Markets Finance and Trade

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The Differential Impact of the Bank-Firm Relationship on IPO Underpricing: Evidence from China

Cited by 5 publications

References 94 publications

IPO underpricing and long-term performance in China: the perspective of price limit policy

IPO underpricing and long-term performance in China: the perspective of price limit policy

A Contemporary View of Corporate Finance Theory, Empirical Evidence and Practice

Why Do Firms Switch Banks? Evidence from China

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