According to the new study “Who do you take to tango? Examining pairing mechanisms between underwriters and initial public offering firms in a nascent stock market”—authored by Yan Anthea Zhang, Rice University; Haiyang Li, Rice University; Jin Chen, University of Nottingham Ningbo China; and Jing Jin, University of International Business and Economics, Beijing, China—high-reputation underwriters’ client-picking behaviors differ in a nascent stock market than in a mature one.
The authors argue that because a nascent stock market typically starts with weak regulations, the financial and reputational penalties for underwriters taking on low-quality clients are not well defined, giving underwriters incentives to put short-term financial gains ahead of long-term reputation concerns.
The study finds that after stronger regulations are introduced into a nascent market—and a few cases demonstrate that underwriters do get panelized for endorsing low-quality firms—the overall quality of IPO firms improves.
The Strategic Entrepreneurship Journal , an association comprised of 3,000 academics, business practitioners, and consultants from 80 countries that focuses on the development and dissemination of insights on the strategic management process, as well as on fostering contacts and interchanges around the world.