IPO Delisting and Underwriter Prestige in China

Abstract

Previous western literature about the effect of underwriter prestige on IPO performance reveals incongruous results but the majority is in support of the positive relationship between the two. This paper focuses on a sample of 1376 IPO firms in China and aims to examine whether underwriter prestige has an explanatory effect on IPO failure under the certification/screening hypothesis and the sociopolitical shield hypothesis. Logit regression model is employed and underwriter prestige is measured by three proxies: the number of managing underwriters, the market share and corporate classification for lead underwriter. For a sample with large offering size, only number of managing underwriters appears significant and is positively related with delisting risk, which contradicts western literature.. Nevertheless, for a sample with small offering size, only state ownership is significant and negatively related with delisting risk. This result is consistent with western literature. The results suggest that underwriter prestige is not formally established in China and there is a lack of mutual certification between underwriters and issuing firms.