Does institutional reform improve the impact of investment bank reputation on the long-term stock performance of initial public offerings?

This study examines the impact of investment bank (IB) reputation on the long-term stock price performance of Chinese initial public offerings (IPOs) over the period 1993 to 2010. For comparison purposes, the whole sample period is separated into two sub-periods by the 2001 IPO allocation system reform: the quota system period from January 1st, 1993 to April 22nd, 2001 (hereafter, the pre-reform period) and the approval system period from April 23rd, 2001 to December 31st, 2010 (hereafter, the post-reform period). Using two time-varying proxies for IB reputation, we find no impact of IB reputation on the three-year buy-and-hold abnormal returns (BHARs) during the pre-reform period, but a significantly positive impact during the post-reform period. Our results are robust to various alternative methodological approaches in controlling for the problem of endogeneity and the cross-sectional correlations in abnormal returns.