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| Empirical Study on Underpricing Cause of Venture-backed IPOs Based on Information Asymmetry Hypothesis：Explanation from Reputation Effects |
| LIU Xiao-Ming-1, HU Wen-Wei-2, LI Zhan-3 |
| (1. International Finance School, Shanghai Finance University, Shanghai 201209, China; 2. Research Department, Hai Tong International Group, Hong Kong, China; 3. Antai College of Economics and Management, Shanghai Jiaotong University, Shanghai 200052, China) |
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Abstract Information asymmetry is one of main hypotheses that can be used to explain IPO underpricing. As the principal financial intermediaries in capital markets, underwriters and venture capital can exert the reputation effect and reduce the degree of information asymmetry, and therefore impose effects on the underpricing of venture-backed firms. The article innovatively puts forward the new measurements of venture capital and underwriter reputations, and finds that the reputations have significant effects on underpricing of venture-backed firms. Moreover, it proves that the higher reputation venture capital can attract higher reputation underwriters, which verifies the certificating role of venture capital and supports the information asymmetry hypothesis on IPO underpricing. The research plays an important role in showing the cause of IPO underpricing, verifying the reputation effects of underwriter and venture capital, probing the operation mechanism and exit strategies of venture capital, forming effective reputation mechanism in capital market and directing investors to invest rationally.
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Received: 10 August 2011
Published: 28 September 2012
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