The impact of regional economic incentives on underwriters' market share in China

Abstract

PurposeTo examine whether and how the different levels of regional economic incentives would have an effect on underwriters' market share in general.Design/methodology/approachDrawing on Chinese IPO firms during the period 2006-2016, this study examines the impact of different levels of regional economic incentives on underwriters' market share.FindingsThe authors find that regional economic incentives have a positive impact on underwriters' market share and that local economic incentives have a significantly stronger impact than central economic incentives. Furthermore, the authors find that IPO firms with underwriters driven by regional economic incentives experience worse post-IPO performance than firms with underwriters driven by central economic incentives, which do not experience a significant decline in post-IPO performance.Originality/valueTaken together, the authors’ findings are consistent with the notion that performance assessment motivates officials at various levels of government to bring companies in their jurisdiction to the IPO market prematurely. In addition, the results indicate that central economic incentives play a significant role in driving China's macroeconomic development and market-oriented system reforms. As such, they are one of the major driving forces behind China's market-oriented system reforms.