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Prior research on underwriter reputation treats underwriters as the unit of analyzing, while the purpose of this paper is to analyze underwriter reputation effects after introducing discretion of underwriters’ employees. Specially, this paper investigates the damage on underwriter reputation effects when underwriters’ employees tolerate issuers’ earnings management for their self-interest.

In 2004, a Chinese security regulation introduced two professional employees from the lead underwriter, known as sponsors, to work as individual financial intermediaries. This paper tests whether the ability of reputable underwriters in restraining issuers from manipulating earnings decreases after the 2004 regulation, given that the regulation encourages sponsors to exchange for their private benefits by ignoring issuers’ earnings management.

The inverse relation between underwriter reputation and issuers’ earnings management is weakened after the 2004 regulation, especially when underwriters do not employ enough sponsors. Sponsors who have tolerated issuers’ earnings management will win more business in the following years. The influence of underwriter reputation on issuers’ underpricing and post-initial public offering performance is also less significant after the regulation.

This work extends literatures on underwriter reputation from a completely different aspect that emphasizes the self-interest of underwriters’ employees. This paper also has direct policy implications for regulators, especially in the current reform climate that Chinese government is trying to carry out the Registration System.

The purpose of this paper is to analyze the effect of the reputation of underwriters and sponsoring representatives on initial public offering (IPO) underwriting fees, and further investigates the role of ownership and political connection.

The methodology includes three models. Model 1 empirically investigates the effect of underwriter’s reputation on underwriting fee. Model 2 studies the effect of sponsoring representative’s reputation on underwriting fee. Model 3 further examines the effect of underwriter’s reputation and sponsoring representative reputation on the underwriting fee controlling for the impact of ultimate controlling ownership and political connection.

The study documents that underwriters’ and sponsoring representatives’ reputation can result in reputational premiums. In the IPO of state-owned enterprises (SOEs), the reputation of underwriters and sponsoring representatives does not significantly affect the underwriting fees. In the IPO of non-state-owned enterprises (NSOEs), there is a significantly positive correlation between underwriters’ and sponsoring representatives’ reputation and underwriting fees. Further research results show that, on the one hand, the effect of underwriters’ and sponsoring representatives’ reputation on underwriting fees is not significant in the IPO of NSOEs with political connection. On the other hand, underwriting fees are positively associated with underwriters’ and sponsoring representatives’ reputation in the IPO of NSOEs without political connection.

The sponsoring representative’s fee is not disclosed separately, which makes it difficult to distinguish the incremental effect from underwriter’s services and reputation.

NSOEs relative to SOEs are more likely to pay higher underwriting fees for hiring underwriter and sponsoring representative with better reputation during the process of IPO.

The reputation of underwriter and sponsoring representative does not matter to SOEs but does matter to NSOEs. However, NSOEs’ political connection affects underwriter fees.

This paper provides new evidence of sponsoring representatives’ reputation and political connection on the underwriting fees in the IPO in Chinese SOEs and NSOEs.

The purpose of this paper is to describe a study which examined the effects of underwriter reputation market segments on the value relevance of firm specific risk measures in the pricing of initial public offerings (IPOs).

The study abandons the notion of a homogenous market for IPOs and focuses instead on the differential demand for information across identifiable segments of the IPO market in the pre‐market offering period leading to the first day trading closing prices. Ordinary least square (OLS) regressions were used to test the two hypotheses developed in the paper.

It was found that firm‐specific risk measures are associated with the initial trading day returns of IPOs managed by low reputation underwriters, but not those by high reputation underwriters. However, as expected, these risk measures are impounded in initial trading day returns only for a sub‐sample of high‐risk junk IPOs that were marked down in price by the underwriter prior to the offering in order to make them more attractive to investors.

As with all empirical studies the tests are joint tests of the hypotheses stipulated and econometric assumptions underlying OLS. The findings of the study may not be generalized to an unrelated domain.

The findings suggest that ex ante risk measures are useful in picking among junk IPOs those with the best chances of survival, and thus earning an initial trading return on those IPOs.

This is the first study to look at junk IPOs in a systematic manner using a quasi‐experimental design.

The purpose of this paper is to examine the certification and monitoring motivations of third-party underwriting and its effects on credit spreads and earnings management of bank issuers.

Ordinary least squares is used to examine the certification and monitoring effects of third-party underwriting. Furthermore, the Heckman two-stage estimation method is used in controlling the endogeneity of sample selection.

The authors find that financial bonds underwritten by third-party underwriters bear lower credit spreads due to their credibly ex ante certification and effectively ex post monitoring compared with self-underwriting. Moreover, the certification of third-party underwriters can help to select good quality bond issuers with lower earnings management, and the monitoring function also plays an essential role in constraining the behavior of earnings management after the bond issues.

The findings in this study suggest that underwriting types (third-party underwriting) will affect financial bond yields and bank issuers’ earnings management.

On the one hand, the authors should encourage third-party underwriters to actively promote the certification and monitoring functions. For example, given commercial banks the chance to be underwriters when the bond issuers are investment banks, which is not allowed now in China’s financial bond market. On the other hand, the authors should cut off the quid pro quo relations within third-party underwriting because such relations will reduce the certification and monitoring effects of third-party underwriters.

This is the first study to distinguish the certification and monitoring effects by using unique data from China’s financial bond market. And the authors further investigate the adverse effects of quid pro quo relations (hiring each other as lead underwriters) on the certification and monitoring effects of third-party underwriters.

This paper aims to provide empirical evidence on the extent of alteration institutional characteristics, i.e. legal origin and corruption levels, may have on the signaling effects of auditors’ reputation, underwriters’ reputation and ownership retention on initial public offering (IPO) initial returns in OECD countries.

Cross-sectional data composed of 6,182 IPOs from 30 OECD countries are used for 2003-2012. Ordinary least square with multiple linear regressions is used to test the hypotheses.

The findings indicate that the legal framework and corruption level of a country alters the signaling effects of underwriters’ reputation, auditors’ reputation and ownership retention in an IPO environment. These three variables mitigate information asymmetry, signal firm value to potential investors and ultimately decrease IPO initial returns. This relationship is more significant in the civil law countries. Corruption levels negatively moderate the relationship in the common law and Scandinavian civil law countries but have no significance in the German and French civil law countries, indicating the importance of the signaling variables in these two civil law countries.

This study examines the extent of the alterations that the legal framework and the corruption levels cause to the signaling relationship between auditors’ reputation, underwriters’ reputation and ownership retention on IPO initial returns in selected OECD countries.

The purpose of this paper is to examine whether the choice of underwriters, venture capital (VC) support, industry and their interactions have any impact on the long‐term performance of initial public offerings (IPOs).

Using standard event study methodology, 12 months of abnormal monthly returns for 1,772 IPOs are obtained. ANOVA and regression analyses are performed on both abnormal returns (ARs) and cumulative ARs to investigate the effect of underwriter choice, VC support and industry and their interactions on the long‐term performance of IPOs.

Under a multi‐factor framework, only significant underwriter and VC effects are found. Short‐term price momentum and long‐term price reversal pattern is most pronounced for IPOs that are underwritten by leading investment banks and backed by venture capitalists. The beginning of price reversal coincides with the expiration of IPO lockup period. Although by the end of the first year, IPOs on average underperform the market, investors can earn above market returns by investing in IPOs that are underwritten by leading investment banks and backed by venture capitalists, and divest before the expiration of the lockup period.

The results are limited by the accuracy of the models used in measuring ARs.

The results seem to suggest that a profitable investment strategy may be implemented with regard to IPOs.

The paper analyzes the various effects and their interactions on the long‐term performance of IPOs.

The purpose of this paper is to investigate the cross‐sectional determinants of the role of the underwriter in aftermarket price discovery.

The paper estimates Gonzalo‐Granger common factor weights across underwriter and non‐underwriter execution channels in the IPO aftermarket and investigates the cross‐sectional determinants of these CFWs.

The first novel result is that verifiable facts are not a substitute for, but a complement to, underwriter certification and advice. Specifically, the underwriter's contribution to price discovery increases with the number of supplier and customer contracts reported in the prospectus. Second, the underwriter's role in price discovery declines when the IPO is first in a new technology or product space. These findings indicate that the verification process, not de novo information production, is the key function of the underwriter.

Research design is applicable to IPOs in the USA and elsewhere.

Previous research examining IPO aftermarket trading has been largely limited to the first day of trading. The paper contributes to the small but growing literature that examines the role of the underwriter beyond this period.

We argue that uninformed subscribers to an initial public offering (IPO) of common stocks are exposed to greater ex ante risk of trading against informed traders in the secondary market because the advent of public trading conveys hitherto private information and thereby mitigates adverse selection. The going‐public firm underprices the new issue to compensate uninformed subscribers for this added secondary market adverse selection risk. We test this market liquidity‐based explanation by investigating the ex‐post consequences of ownership structure choice on the initial pricing and the secondary market liquidity of a sample of initial public offerings on the New York Stock Exchange (NYSE). Consistent with our argument, we find that initial underpricing varies directly with the ex post trading costs in the secondary market. Further, initial underpricing is related positively to the concentration of institutional shareholdings and negatively to the proportional equity ownership retained by the founding shareholders. Finally, the secondary market illiquidity of new issues is positively related to institutional ownership concentration and negatively to ownership retention and underwriter reputation. Thus, the evidence based on our NYSE sample supports the view that the entrepreneurs' choice of ownership structure affects both the initial pricing and the subsequent market liquidity of new issues.

The purpose of the research is to study how Chief Executive Officer’s (CEO’s) ownership, CEO’s structural and expertise power and underwriters’ reputation affect the initial public offering (IPO) lockup period.

The study uses the multivariate regression method to test the hypothesis on a sample of 1,071 US IPOs, which comprise 80 per cent of the total population of IPOs over the 1998-2002 period.

It was found that CEO equity ownership had a direct positive impact and two indicators of CEO positional power (CEO duality, founder status) and underwriter reputation had a direct negative impact on the length of the lockup period that results from IPO negotiations between the issuing firm and the underwriter. It was also found that underwriter reputation negatively moderates the impact of equity ownership (likely due to a substitution effect) and positively moderates the impact of CEO duality on lockup period length (by offsetting the impact of CEO positional power).

Previous studies have exclusively studied the affect of economic factors on IPO lockup. This paper extends the extant literature by studying the insider’s characteristics like CEO’s power and underwriter’s reputation on IPO lockup periods.

The purpose of this paper is to investigate factors influencing the underwriting discount for US Real Estate Investment Trust (REIT) Seasoned Equity Offerings (SEOs).

The study provides new evidence on determinants of underwriting discounts with a comprehensive dataset of 783 US REIT SEOs from 1996 until June 2010. Ordinary least squares regressions are performed to estimate the effect of the level of representative underwriting along with other potential factors on underwriting discounts.

The study complements the well‐documented notion of the economies of scale in SEO underwriting discounts. The equally (value) weighted underwriting discounts averaged 4.21 per cent (4.10 per cent) with a declining trend over time. The findings of this study show the statistically and economically significant negative effect of the level of representative underwriting on the underwriting discounts, as well as the significance of the structure of underwriting syndicate in determining the underwriting discounts. The findings suggest that issuers can minimize the costs of raising secondary equity capital by optimally allocating the underwriting business among the underwriters.

This paper adds to the international REIT SEO literature by exploring new evidence behind underwriting discounts. The study includes data before and after the REIT Modernization Act 1999 and during the recent global financial crisis period.