Individual investment banker human capital and SEO discount: Evidence from China

Abstract

Using unique data of seasoned equity offerings (SEO) by public firms in China, this study examines whether and how human capital of individual investment bankers affects SEO discount. We find a robust negative relation between SEO discount and the human capital of individual investment bankers who underwrite the seasoned equity. Our mechanism tests reveal that for firms with higher information asymmetry or agency problems between controlling and minority shareholders, individual investment bankers with greater human capital can provide higher quality underwriting services. Additional analyses show that the human capital gained from previous fraudulent offerings can not provide effective intermediary services. And when more experienced investment bankers switch to a new bank, stock issuers are more likely to move with them. Human capital of individual investment bankers has positive relations with the tone of SEO sponsor letters. Furthermore, the role of individual investment bankers is more pronounced after the registration system reform in Chinese capital market.