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Pre-IPO Equity Investments by Investment Banks:Certification or Loss of Independence?

Fang Junxiong  
The consequence of Pre-IPO equity investments by underwriters is one of hot issues in financial research.And the public is concerned about the loss of independence of underwriters by Pre-IPO equity investments in China.This paper studies the influence possibly caused by Pre-IPO equity investments by underwriters based on the IPOs between 2009 and 2011.The results show that companies equity invested by brokers have significantly higher pre-IPO earnings management than other companies,and it is more obvious if the brokers invested at an early stage.These companies would have a greater decline in the accounting performance after IPO.And further research indicates that the underwriting fee and underpricing of companies invested by underwriters is higher.These mean that the Pre-IPO investments by underwriters damage the independence of underwriters to a certain extent,which further damage the efficiency of IPO market financing.
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