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Does supplier stability matter in initial public offering pricing?

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  • Peng, Xuan
  • Wang, Xiongyuan
  • Chan, Kam C.

Abstract

Leveraging the availability of supplier and pre-IPO information in China, we examine the impact of supplier stability information disclosure on the IPO discount. Our findings suggest that when an IPO firm has stable suppliers, it has less IPO discount than an IPO firm with unstable suppliers. The results are robust to alternative measures of IPO discounts and supplier stability, and they are consistent with the information asymmetry explanation of IPO discount. Hence, IPO firms can leave less money on the table by maintaining stable suppliers. In addition, we document that stable supplier IPO firms, on average, exhibit higher real earning management in terms of discretionary production cost than those of unstable supplier IPO firms. Furthermore, the difference-in-differences analysis suggests that consistent stable supplier IPO firms have a higher share of purchase ratios than those of unstable supplier IPO firms post-IPO. The findings are consistent with the notion that stable suppliers transmit benefits to IPO firms pre-IPO to help these firms get regulatory approval, and, post-IPO, the IPO firms return the favor to the stable suppliers.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:proeco:v:225:y:2020:i:c:s0925527319304190
    DOI: 10.1016/j.ijpe.2019.107577
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    Cited by:

    1. Chan, Kam C. & Li, Guangzi, 2022. "Prior banking relationships and long-term IPO performance," International Review of Economics & Finance, Elsevier, vol. 77(C), pages 123-134.
    2. Gu, Jing & Shi, Xinyu & Wang, Junyao & Xu, Xun, 2024. "Examining the impact of market power discrepancy between supply chain partners on firm financial performance," International Journal of Production Economics, Elsevier, vol. 268(C).
    3. Li, Yanqiong & He, Jie & Chan, Kam C., 2021. "Information transmission along supply chains: Stock price reaction of suppliers upon a customer's release of qualitative risk information," International Journal of Production Economics, Elsevier, vol. 239(C).
    4. Zhu, Minghao & Yeung, Andy C.L. & Zhou, Honggeng, 2021. "Diversify or concentrate: The impact of customer concentration on corporate social responsibility," International Journal of Production Economics, Elsevier, vol. 240(C).
    5. Zhang, Jiping & Mo, Haimiao & Hu, Zhijian & Zhang, Tianjiao, 2024. "The effect of stability and concentration of upstream and downstream relationships of focal firms on two-level trade credit," International Journal of Production Economics, Elsevier, vol. 270(C).
    6. Gu, Jing & Shi, Xinyu & Wang, Peini & Xu, Xun, 2022. "Examining the impact of upstream and downstream relationship stability and concentration on firms’ financial performance," Journal of Business Research, Elsevier, vol. 141(C), pages 229-242.
    7. Liu, Bai & Ju, Tao & Chan, Hing Kai, 2022. "The diverse impact of heterogeneous customer characteristics on supply chain finance: Empirical evidence from Chinese factoring," International Journal of Production Economics, Elsevier, vol. 243(C).
    8. Boulton, Thomas J. & Ellram, Lisa M., 2024. "The intersection of supply chain operations and finance: Logistics uncertainty and International IPO underpricing," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 189(C).

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