The Hong Kong IPO underpricing phenomenon and the underwriter reputation

The primary focus of this study is on the underpricing phenomenon in the Hong Kong IPO market. The study examines the link between the reputation of underwriters to an WO issue and the level of underpricing of that issue. To rank each underwriter as one with either a high reputation or low reputation the study uses a sample of 273 IPOs in the Hong Kong market from 1993 to 1998. The main findings of this study are that underwriters with high reputations underprice their IPOs 8.40% more than then low reputation counterparts, on average. This is contrary to the findings of many previous studies but is not statistically significant and indicates that the Hong Kong underwriters of high reputation have a pricing behaviour which is distinct from underwriters in other markets. In addition, the average risk level of IPOs undertaken by high reputation underwriters is not significantly different statistically from that of low reputation underwriters. 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