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Selection Bias and the Underwriter Certification of the Largest Shareholders in Seasoned Equity Offerings
Author(s) -
Lee ChinChong,
Poon WaiChing,
Sinnakkannu Jothee
Publication year - 2018
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12145
Subject(s) - underwriting , shareholder , equity (law) , business , certification , investment banking , accounting , information asymmetry , investment (military) , enterprise value , finance , actuarial science , economics , corporate governance , management , politics , political science , law
The largest shareholders of issuing firms in Hong Kong are eligible to underwrite rights issues and open offers. We hypothesize that the largest shareholders as underwriters who possess more information are better than investment banks in certifying firm value. Our analyses show that the largest shareholders self‐select into their preferred issuing firms, and a selection bias in the choice of underwriters arises. After controlling for firm and issue characteristics and addressing the selection bias, our findings support our hypothesis. We also find that investment banks with greater access to information through prior underwriting relationship provide better certification than investment banks without such relationship.