The differential impact of the bank–firm relationship on IPO underpricing: evidence from China

Xiangchao Hao, Jing Shi, Jian Yang

Research output: Contribution to journalArticlepeer-review

14 Citations (Scopus)

Abstract

This study investigates the impact of the bank–firm relationship on IPO underpricing in China, an emerging economy with a bank-dominated financial system. Utilizing a hand-collected loan data for 902 Chinese IPO firms from 2004 to 2011, we document that the bank–firm relationship reduces the degree of IPO underpricing. Both the lender's and the borrower's firm characteristics affect the signal quality of the bank–firm relationship, resulting in differential impacts on IPO underpricing. The relationship between firms and banks with high credit quality or the relationship between politically unconnected firms and banks has a more positive impact on mitigating IPO underpricing.
Original languageEnglish
Pages (from-to)207-232
Number of pages26
JournalPacific-Basin Finance Journal
Volume30
DOIs
Publication statusPublished - Nov 2014
Externally publishedYes

Keywords

  • Bank's credit quality
  • Commercial banks
  • Initial public offerings
  • Political connections
  • The bank-firm relationship

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