Impact of Government Ownership on Investment Banks’ Underwriting Performance: Evidence from China*


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    Acknowledgments: This paper was previously circulated under the title “The Impact of Government Ownership on the Underwriting Performance of Investment Banks – Evidence from China”. We appreciate helpful comments and suggestions from an anonymous referee, Seoungpil Ahn, Weiqi Liu and other participants of the Fourth International Conference on Asia-Pacific Financial Markets (CAFM). We also thank the editor Bong-Chan Kho for publication opportunity. This manuscript received one of the eight best paper awards at the Fourth International Conference on Asia-Pacific Financial Markets (CAFM) of the Korean Securities Association in 2009. We thank the 2009 CAFM review committee, the program chair J.B. Chay, and the Korea Development Bank for the award.

Ning Jia, Weilun Building, North 201F, School of Economics and Management, Tsinghua University, Beijing 100084, China. Tel: +86 10 62795524, Fax: +86 10 62783540, email:


This paper examines the effect of government ownership on investment banks’ underwriting performance in China. A large number of Chinese investment banks are owned and controlled by their respective regional governments. While regional governments may capitalize on their superior local knowledge and administrative power to help affiliated investment banks identify and land high quality local issuers, they may also leverage affiliated underwriters to facilitate the capital market access of those underperformed but socially and/or politically desirable local firms. Empirical evidence favors the latter hypothesis. Specifically, using a sample of regional IPOs, we find that issuers underwritten by their respective regional government-affiliated investment banks exhibit lower earnings quality and poorer long-term performance compared with those underwritten by unaffiliated investment banks. However, this difference is attenuated after the abolition of the IPO quota system. Examination of underwriting fees and issuers’ shareholder identity provides additional evidence supporting the latter hypothesis.