Underwriter Reputation, Issuer Ownership, and Pre-IPO Earnings Management: Evidence from China
We are grateful to an anonymous referee, Charles Chen, Shimin Chen, Bill Christie (Editor), Dionysia Dionysiou, Yuan Ding, Yuan-Cheng Hu, Jeong-Bon Kim, Jay Ritter, Shuang Xue, and Hongqi Yuan for their helpful comments and insights. We would also like to thank the participants of the 2010 American Accounting Association Annual Meeting, 2010 Financial Management Association Annual Meeting, 2011 MFS Annual Conference, 2010 National Taiwan University IEFA Annual Conference, and the research workshops at Peking University, Tsinghua University, Jiangxi University of Finance and Economics, and Fudan University. Special thanks go to an anonymous reviewer. The authors are grateful for the financial support from the National Nature Science Foundation of China (Nos. 71072004, 71202056, and 71272073), and the Financial Research Center of Fudan University. All remaining errors are our own.
This paper investigates the correlation between pre-initial public offering (pre-IPO) earnings management and underwriter reputation for issuers with different ownership structures in China. We document a significantly inverse relationship between underwriter reputation and pre-IPO earnings management for non-state-owned enterprises (NSOE) issuers only, while no significant association is found for state-owned enterprises (SOE) issuers. We also find that for the NSOE new issue market, underwriter reputation is positively correlated with issuer post-IPO performance indicating that prestigious underwriters can incrementally improve issuer post-IPO performance.