Publication Type

Journal Article

Publication Date

6-2010

Abstract

In this paper we examine whether information risk affects underwriter switching in a seasoned equity offering (SEO) process. Building on previous research, we hypothesize that SEO firms and underwriters associate with one another by mutual choice, and firms with a low degree of information risk tend to match up with prestigious underwriters. Using a sample of SEO firms in China and employing accruals quality as a proxy of information risk, we find evidence consistent with our hypothesis: the information risk and the initial public offering (IPO) underwriters’ reputation at the time of the SEO jointly determine the probability that the firms will switch their underwriters. A mismatch between information risk and underwriter reputation increases the probability of an underwriter switching. Furthermore, if the firms decide to switch underwriters, then a lower degree of information risk is associated with a greater likelihood of changing to a more reputable underwriter. We also find that the relationship between information risk and the choice of underwriter reputation primarily exists in non-state-controlled companies.

Keywords

information risk, underwriter reputation, underwriter switching, state ownership, seasoned equity offerings

Discipline

Information Security | Management Information Systems

Research Areas

Accounting Information System

Publication

Journal of Business Finance and Accounting

Volume

37

Issue

7-8

First Page

905

Last Page

928

ISSN

0306-686X

Identifier

10.1111/j.1468-5957.2010.02211.x

Publisher

Wiley: 24 months

Additional URL

http://doi.org./10.1111/j.1468-5957.2010.02211.x

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