Underwriter Reputation, Issuer Ownership, and Pre-IPO Earnings Management: Evidence from China

Abstract

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.

Keywords: IPO, Earnings management, Underwriter reputation, SOE, Post-issue performance

JEL Classification: G14, G15, G24, G32