IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v67y2021ics0929119921000201.html
   My bibliography  Save this article

Let us work together: The impact of customer strategic alliances on IPO underpricing and post-IPO performance

Author

Listed:
  • Peng, Xuan
  • Jia, Yibo
  • Chan, Kam C.
  • Wang, Xiongyuan

Abstract

Leveraging the availability of three years of pre-IPO data and related vs unrelated-party customer information for Chinese firms, we examine the impact of customer strategic alliances (CSA) on IPO underpricing from 2007 to 2015. Our core findings suggest that IPO firms with CSAs have less IPO underpricing than those without such a relationship. The decrease in underpricing is more salient for IPO firms that have non-related-party customers. Additional analysis suggests that the core findings are primarily driven by firms with good information environment pre-IPO, including high audit quality, high analyst following, and low earnings management. We interpret the results as indicating that a good pre-IPO information environment enhances the credibility of CSA relationships and signals high IPO quality. Furthermore, we document that a CSA relationship has a positive impact on an IPO firm's post-IPO performance, especially when the firm has non-related-party customers. Overall, CSAs reduce IPO underpricing and enhance IPO returns post-IPO.

Suggested Citation

  • Peng, Xuan & Jia, Yibo & Chan, Kam C. & Wang, Xiongyuan, 2021. "Let us work together: The impact of customer strategic alliances on IPO underpricing and post-IPO performance," Journal of Corporate Finance, Elsevier, vol. 67(C).
    • Handle: RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000201
    DOI: 10.1016/j.jcorpfin.2021.101899
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929119921000201
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jcorpfin.2021.101899?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Lennox, Clive & Wang, Zi-Tian & Wu, Xi, 2018. "Earnings management, audit adjustments, and the financing of corporate acquisitions: Evidence from China," Journal of Accounting and Economics, Elsevier, vol. 65(1), pages 21-40.
    2. Alexander Ljungqvist & William J. Wilhelm, 2003. "IPO Pricing in the Dot‐com Bubble," Journal of Finance, American Finance Association, vol. 58(2), pages 723-752, April.
    3. Krigman, Laurie & Shaw, Wayne H. & Womack, Kent L., 2001. "Why do firms switch underwriters?," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 245-284, May.
    4. Jay R. Ritter & Ivo Welch, 2002. "A Review of IPO Activity, Pricing, and Allocations," Journal of Finance, American Finance Association, vol. 57(4), pages 1795-1828, August.
    5. Piotroski, Joseph D. & Zhang, Tianyu, 2014. "Politicians and the IPO decision: The impact of impending political promotions on IPO activity in China," Journal of Financial Economics, Elsevier, vol. 111(1), pages 111-136.
    6. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
    7. Chemmanur, Thomas J. & Fulghieri, Paolo, 1997. "Why Include Warrants in New Equity Issues? A Theory of Unit IPOs," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(1), pages 1-24, March.
    8. Carter, Richard B & Manaster, Steven, 1990. "Initial Public Offerings and Underwriter Reputation," Journal of Finance, American Finance Association, vol. 45(4), pages 1045-1067, September.
    9. J. Carlos Jarillo, 1988. "On strategic networks," Strategic Management Journal, Wiley Blackwell, vol. 9(1), pages 31-41, January.
    10. Çolak, Gönül & Durnev, Art & Qian, Yiming, 2017. "Political Uncertainty and IPO Activity: Evidence from U.S. Gubernatorial Elections," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2523-2564, December.
    11. Andrew J. Leone & Steve Rock & Michael Willenborg, 2007. "Disclosure of Intended Use of Proceeds and Underpricing in Initial Public Offerings," Journal of Accounting Research, Wiley Blackwell, vol. 45(1), pages 111-153, March.
    12. Jing Gao & Ling Mei Cong & John Evans, 2015. "Earnings Management, IPO Underpricing, and Post-Issue Stock Performance of Chinese SMEs," Chinese Economy, Taylor & Francis Journals, vol. 48(5), pages 351-371, September.
    13. Re‐Jin Guo & Baruch Lev & Charles Shi, 2006. "Explaining the Short‐ and Long‐Term IPO Anomalies in the US by R&D," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(3‐4), pages 550-579, April.
    14. Chen, Yibiao & Wang, Steven Shuye & Li, Wei & Sun, Qian & Tong, Wilson H.S., 2015. "Institutional environment, firm ownership, and IPO first-day returns: Evidence from China," Journal of Corporate Finance, Elsevier, vol. 32(C), pages 150-168.
    15. Fernando, Chitru S. & Krishnamurthy, Srinivasan & Spindt, Paul A., 2004. "Are share price levels informative? Evidence from the ownership, pricing, turnover and performance of IPO firms," Journal of Financial Markets, Elsevier, vol. 7(4), pages 377-403, October.
    16. Jianping Qi & Ninon K. Sutton & Qiancheng Zheng, 2015. "The Value of Strategic Alliances in Acquisitions and IPOs," Financial Management, Financial Management Association International, vol. 44(2), pages 387-430, June.
    17. John Hagedoorn & Geert Duysters, 2002. "External Sources of Innovative Capabilities: The Preferences for Strategic Alliances or Mergers and Acquisitions," Journal of Management Studies, Wiley Blackwell, vol. 39(2), pages 167-188, March.
    18. Roychowdhury, Sugata, 2006. "Earnings management through real activities manipulation," Journal of Accounting and Economics, Elsevier, vol. 42(3), pages 335-370, December.
    19. Hanselaar, Rogier M. & Stulz, René M. & van Dijk, Mathijs A., 2019. "Do firms issue more equity when markets become more liquid?," Journal of Financial Economics, Elsevier, vol. 133(1), pages 64-82.
    20. Beatty, Randolph P. & Ritter, Jay R., 1986. "Investment banking, reputation, and the underpricing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 213-232.
    21. Frankel, Richard & Kothari, S.P. & Weber, Joseph, 2006. "Determinants of the informativeness of analyst research," Journal of Accounting and Economics, Elsevier, vol. 41(1-2), pages 29-54, April.
    22. An, Heng (Hunter) & Chan, Kam C., 2008. "Credit ratings and IPO pricing," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 584-595, December.
    23. John D. Lyon & Brad M. Barber & Chih‐Ling Tsai, 1999. "Improved Methods for Tests of Long‐Run Abnormal Stock Returns," Journal of Finance, American Finance Association, vol. 54(1), pages 165-201, February.
    24. Ritter, Jay R, 1991. "The Long-run Performance of Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(1), pages 3-27, March.
    25. Su, Han Chan & Kensinger, John W. & Keown, Arthur J. & Martin, John D., 1997. "Do strategic alliances create value?," Journal of Financial Economics, Elsevier, vol. 46(2), pages 199-221, November.
    26. Pollitte, Wesley A. & Miller, Joseph C. & Yaprak, Attila, 2015. "Returns to US firms from strategic alliances in China: A knowledge-based view," Journal of World Business, Elsevier, vol. 50(1), pages 144-148.
    27. Rock, Kevin, 1986. "Why new issues are underpriced," Journal of Financial Economics, Elsevier, vol. 15(1-2), pages 187-212.
    28. Zhou, Mingshan & Xiao, Dacheng & Chan, Kam C. & Fung, Hung-Gay, 2019. "The impact of pre-IPO performance pressure on research and development investments of an IPO firm: Evidence from China," Economic Modelling, Elsevier, vol. 78(C), pages 40-46.
    29. Healy, Paul M. & Palepu, Krishna G., 2001. "Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature," Journal of Accounting and Economics, Elsevier, vol. 31(1-3), pages 405-440, September.
    30. Chemmanur, Thomas J. & Hull, Tyler J. & Krishnan, Karthik, 2016. "Do local and international venture capitalists play well together? The complementarity of local and international venture capitalists," Journal of Business Venturing, Elsevier, vol. 31(5), pages 573-594.
    31. Jeffrey Gramlich & Ole Sørensen, 2004. "Voluntary management earnings forecasts and discretionary accruals: evidence from Danish IPOs," European Accounting Review, Taylor & Francis Journals, vol. 13(2), pages 235-259.
    32. Lin, Hui Ling & Pukthuanthong, Kuntara & Walker, Thomas John, 2013. "An international look at the lawsuit avoidance hypothesis of IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 19(C), pages 56-77.
    33. Sean Nicholson, 2005. "Biotech-Pharmaceutical Alliances as a Signal of Asset and Firm Quality," The Journal of Business, University of Chicago Press, vol. 78(4), pages 1433-1464, July.
    34. Bodnaruk, Andriy & Massa, Massimo & Simonov, Andrei, 2013. "Alliances and corporate governance," Journal of Financial Economics, Elsevier, vol. 107(3), pages 671-693.
    35. Benoît F. Leleux & Daniel F. Muzyka, 1997. "European IPO Markets: The Post-Issue Performance Imperative," Entrepreneurship Theory and Practice, , vol. 21(4), pages 111-118, July.
    36. Wang, Taiyuan & Qureshi, Israr & Deeds, David & Ren, Yi, 2019. "How do technology ventures signal IPO quality? A configurational approach," Journal of Business Research, Elsevier, vol. 99(C), pages 105-114.
    37. Tian, Lihui, 2011. "Regulatory underpricing: Determinants of Chinese extreme IPO returns," Journal of Empirical Finance, Elsevier, vol. 18(1), pages 78-90, January.
    38. Lee, Hyunchul & Cho, Euije & Cheong, Chongcheul & Kim, Jinsu, 2013. "Do strategic alliances in a developing country create firm value? Evidence from Korean firms," Journal of Empirical Finance, Elsevier, vol. 20(C), pages 30-41.
    39. Liu, Qigui & Tang, Jinghua & Tian, Gary Gang, 2013. "Does political capital create value in the IPO market? Evidence from China," Journal of Corporate Finance, Elsevier, vol. 23(C), pages 395-413.
    40. Wan Wongsunwai, 2013. "The Effect of External Monitoring on Accrual†Based and Real Earnings Management: Evidence from Venture†Backed Initial Public Offerings," Contemporary Accounting Research, John Wiley & Sons, vol. 30(1), pages 296-324, March.
    41. Peng, Xuan & Wang, Xiongyuan & Chan, Kam C., 2019. "Does customer concentration disclosure affect IPO pricing?," Finance Research Letters, Elsevier, vol. 28(C), pages 363-369.
    42. Jesse A. Ellis & C. Edward Fee & Shawn E. Thomas, 2012. "Proprietary Costs and the Disclosure of Information About Customers," Journal of Accounting Research, Wiley Blackwell, vol. 50(3), pages 685-727, June.
    43. Loughran, Tim & Ritter, Jay R, 1995. "The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
    44. Chang, Sea Jin, 2004. "Venture capital financing, strategic alliances, and the initial public offerings of Internet startups," Journal of Business Venturing, Elsevier, vol. 19(5), pages 721-741, September.
    45. S. Ramakrishna Velamuri & Wilson Liu, 2017. "Ownership structure, insider behavior, and IPO performance of SMEs in China," Small Business Economics, Springer, vol. 48(3), pages 771-793, March.
    46. Roni Michaely & Wayne H. Shaw, 1995. "Does the Choice of Auditor Convey Quality in an Initial Public Offering?," Financial Management, Financial Management Association, vol. 24(4), Winter.
    47. repec:bla:jfinan:v:53:y:1998:i:1:p:285-311 is not listed on IDEAS
    48. Gounopoulos, Dimitrios & Kallias, Antonios & Kallias, Konstantinos & Tzeremes, Panayiotis G., 2017. "Political money contributions of U.S. IPOs," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 19-38.
    49. Chen, Hung-Kun & Liang, Woan-lih, 2016. "Do venture capitalists improve the operating performance of IPOs?," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 291-304.
    50. Li, Xiaorong & Wang, Steven Shuye & Wang, Xue, 2019. "Trust and IPO underpricing," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 224-248.
    51. Dhaliwal, Dan & Judd, J. Scott & Serfling, Matthew & Shaikh, Sarah, 2016. "Customer concentration risk and the cost of equity capital," Journal of Accounting and Economics, Elsevier, vol. 61(1), pages 23-48.
    52. Juasrikul, Sakdipon & Sahaym, Arvin & Yim, Hyunsoon (Sean) & Liu, Richie L., 2018. "Do cross-border alliances with MNEs from developed economies create firm value for MNEs from emerging economies?," Journal of Business Research, Elsevier, vol. 93(C), pages 98-110.
    53. Xingqiang Du & Xu Li & Xuejiao Liu & Shaojuan Lai, 2018. "Underwriter–Auditor Relationship and Pre-IPO Earnings Management: Evidence from China," Journal of Business Ethics, Springer, vol. 152(2), pages 365-392, October.
    54. Baxamusa, Mufaddal & Jalal, Abu & Jha, Anand, 2018. "It pays to partner with a firm that writes annual reports well✰," Journal of Banking & Finance, Elsevier, vol. 92(C), pages 13-34.
    55. William C. Johnson & Jun‐Koo Kang & Sangho Yi, 2010. "The Certification Role of Large Customers in the New Issues Market," Financial Management, Financial Management Association International, vol. 39(4), pages 1425-1474, December.
    56. Re-Jin Guo & Baruch Lev & Charles Shi, 2006. "Explaining the Short- and Long-Term IPO Anomalies in the US by R&D," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 33(3-4), pages 550-579.
    57. Ranjay Gulati & Monica C. Higgins, 2003. "Which ties matter when? the contingent effects of interorganizational partnerships on IPO success," Strategic Management Journal, Wiley Blackwell, vol. 24(2), pages 127-144, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Jun Qi & Qinwei Chi & Ni Yang & Junyan Ouyang, 2023. "The Impact of the Tone of a Prospectus on IPO Underpricing: Evidence from China," Australian Accounting Review, CPA Australia, vol. 33(4), pages 375-390, December.
    2. Zhang, Shengpeng & Li, Yaokuang & Liang, Ruixin & He, Yu, 2024. "Does management tone matter in information disclosure? Evidence from IPO online roadshows in the SSE STAR market," International Review of Financial Analysis, Elsevier, vol. 94(C).
    3. Chu-hsuan Chang & Woan-lih Liang & Yanzhi Wang, 2024. "Trade secret laws and initial public offering underpricing," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 325-353, July.
    4. Md. Jahidur Rahman & Mingyang Yang, 2021. "Effects of Venture Capital, R&D, and Technology on IPO Underpricing: Evidence from China," Capital Markets Review, Malaysian Finance Association, vol. 29(2), pages 13-28.
    5. Hu, Yi & Dai, Tiantian & Li, Yong & Mallick, Sushanta & Ning, Lutao & Zhu, Baohua, 2021. "Underwriter reputation and IPO underpricing: The role of institutional investors in the Chinese growth enterprise market," International Review of Financial Analysis, Elsevier, vol. 78(C).
    6. Zeng, Jing & Liu, Xinglin & Chan, Kam C., 2024. "Is a tax deductibility of R&D investment always good for a firm? The case of IPO underpricing," Finance Research Letters, Elsevier, vol. 62(PA).
    7. Chan, Kam C. & He, Jie & Li, Changwei & Zhang, Linlang, 2023. "Narcissistic managers and IPO underpricing," International Review of Financial Analysis, Elsevier, vol. 89(C).
    8. Guo, Mengmeng & Wang, Huixin & Kuai, Yicheng, 2023. "Environmental regulation and green innovation: Evidence from heavily polluting firms in China," Finance Research Letters, Elsevier, vol. 53(C).
    9. Wang, Jiaxin & Cheng, Ruonan & Huang, Yong & Yan, Chao, 2023. "The pre-IPO dividend and IPO underpricing: Evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 82(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Goergen, Marc & Gounopoulos, Dimitrios & Koutroumpis, Panagiotis, 2021. "Do multiple credit ratings reduce money left on the table? Evidence from U.S. IPOs," Journal of Corporate Finance, Elsevier, vol. 67(C).
    2. Peng, Xuan & Wang, Xiongyuan & Chan, Kam C., 2020. "Does supplier stability matter in initial public offering pricing?," International Journal of Production Economics, Elsevier, vol. 225(C).
    3. Huang, Yong & Yan, Chao & Chan, Kam C., 2021. "Does aggressiveness help? Evidence from IPO corruption and pricing in China," Journal of Corporate Finance, Elsevier, vol. 67(C).
    4. Agoraki, Maria-Eleni K. & Gounopoulos, Dimitrios & Kouretas, Georgios P., 2022. "U.S. banks’ IPOs and political money contributions," Journal of Financial Stability, Elsevier, vol. 63(C).
    5. Guo, Mengmeng & Su, Yun & Zhao, Rui, 2024. "The effect of expanded audit report on IPO underpricing: Evidence from China," Emerging Markets Review, Elsevier, vol. 58(C).
    6. Gounopoulos, Dimitrios & Kallias, Antonios & Kallias, Konstantinos & Tzeremes, Panayiotis G., 2017. "Political money contributions of U.S. IPOs," Journal of Corporate Finance, Elsevier, vol. 43(C), pages 19-38.
    7. Elvira Tiziana La Rocca, 2016. "Ipo, Underpricing e Corporate governance: una meta analisi," ESPERIENZE D'IMPRESA, FrancoAngeli Editore, vol. 2016(1), pages 41-64.
    8. Natalia Matanova & Tanja Steigner & Bingsheng Yi & Qiancheng Zheng, 2019. "Going concern opinions and IPO pricing accuracy," Review of Quantitative Finance and Accounting, Springer, vol. 53(1), pages 195-238, July.
    9. Feng, Xunan & Johansson, Anders C. & Wei, Dengxi, 2023. "Judging a book by its cover: Analysts and attention-driven price patterns in China's IPO market," Pacific-Basin Finance Journal, Elsevier, vol. 78(C).
    10. Chen, Yangyang & Duong, Huu Nhan & Goyal, Abhinav & Veeraraghavan, Madhu, 2023. "Social capital and the pricing of initial public offerings," Journal of Empirical Finance, Elsevier, vol. 74(C).
    11. Fouad Jamaani & Manal Alidarous, 2019. "Review of Theoretical Explanations of IPO Underpricing," Journal of Accounting, Business and Finance Research, Scientific Publishing Institute, vol. 6(1), pages 1-18.
    12. Hoque, Hafiz & Mu, Shaolong, 2021. "Does a reduction of state control affect IPO underpricing? Evidence from the Chinese A-share market," Journal of International Money and Finance, Elsevier, vol. 115(C).
    13. Agathee, Ushad Subadar & Sannassee, Raja Vinesh & Brooks, Chris, 2012. "The underpricing of IPOs on the Stock Exchange of Mauritius," Research in International Business and Finance, Elsevier, vol. 26(2), pages 281-303.
    14. Nilabhra Bhattacharya & Elizabeth Demers & Philip Joos, 2010. "The Relevance of Accounting Information in a Stock Market Bubble: Evidence from Internet IPOs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 37(3-4), pages 291-321.
    15. Rui Ding, 2016. "Disclosure of Downside Risk and Investors' Use of Qualitative Information: Evidence from the IPO Prospectus's Risk Factor Section," International Review of Finance, International Review of Finance Ltd., vol. 16(1), pages 73-126, March.
    16. Waqas Mehmood & Rasidah Mohd-Rashid & Yasir Abdullah & Ataul Karim Patwary & Attia Aman-Ullah, 2023. "Inclusive mapping of initial public offerings: a bibliometric and literature review study," Quality & Quantity: International Journal of Methodology, Springer, vol. 57(1), pages 655-700, February.
    17. Oehler, Andreas & Rummer, Marco & Smith, Peter N., 2004. "IPO Pricing and the Relative Importance of Investor Sentiment: Evidence from Germany," Discussion Papers 26, University of Bamberg, Chair of Finance.
    18. Dorsman, André & Gounopoulos, Dimitrios, 2013. "European Sovereign Debt Crisis and the performance of Dutch IPOs," International Review of Financial Analysis, Elsevier, vol. 30(C), pages 308-319.
    19. Feng, Xunan & Johansson, Anders C., 2015. "Can mutual funds pick stocks in China? Evidence from the IPO market," Journal of Banking & Finance, Elsevier, vol. 55(C), pages 170-186.
    20. Saade, Samer, 2015. "Investor sentiment and the underperformance of technology firms initial public offerings," Research in International Business and Finance, Elsevier, vol. 34(C), pages 205-232.

    More about this item

    Keywords

    Customer strategic alliance; IPO underpricing; Performance post-IPO;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:67:y:2021:i:c:s0929119921000201. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.