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

Xiangchao Hao; Jing Shi; Jian Yang

doi:10.1016/j.pacfin.2014.10.004

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

Xiangchao Hao, Jing Shi, Jian Yang

Research output: Contribution to journal › Article › peer-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 language	English
Pages (from-to)	207-232
Number of pages	26
Journal	Pacific-Basin Finance Journal
Volume	30
DOIs	https://doi.org/10.1016/j.pacfin.2014.10.004
Publication status	Published - Nov 2014
Externally published	Yes

Keywords

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

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10.1016/j.pacfin.2014.10.004

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

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.",

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AB - 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.

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