Based on research by Yan “Anthea” Zhang, Haiyang Li, Jin Chen and Jing Jin

• In mature markets like NYSE, underwriter reputation is a reliable indicator of IPO quality.  
• But in emerging markets, underwriter fees are a better indicator of investment risk.
• Investors should only assume that top-tier underwriters represent high-quality firms if the market has a developed regulatory environment.

Many investors assume they can judge the strength of an IPO based on the reputation of the underwriter supporting it.

However, a recent study by Rice Business professors Anthea Zhang and Haiyang Li, along with Jin Chen (Nottingham University) and Jing Jin (University of International Business and Economics), proves this is only sometimes true — depending on how mature the stock exchange is.

Getting your company listed on the stock market is a big step. It opens new opportunities to raise money and grow the business. But it also means facing increased regulations, reporting requirements and public scrutiny.

To successfully launch an initial public offering (IPO), most companies hire “underwriters” — financial services firms — to guide them through the complex process. Because underwriters have expertise in valuations, filing paperwork and promoting to investors, they play a crucial role in ushering companies onto the market.

In well-established markets like the New York Stock Exchange (NYSE), an underwriter’s reputation carries immense weight with investors. Top-tier banks like Goldman Sachs have built their reputations by rigorously vetting and partnering with only the most promising companies. When Goldman Sachs takes on the role of underwriter, it sends a strong signal to potential investors that the IPO has met stringent standards. After all, a firm of Goldman’s caliber would not risk tarnishing its hard-earned reputation by associating with subpar companies.

Conversely, IPO firms recognize the value of having a prestigious underwriter. Such an association lends credibility and prestige, enhancing the company’s appeal. In a mature market environment, the underwriter’s reputation correlates to the IPO’s potential, benefiting both the investors who seek opportunities and the companies wanting to make a strong public debut.

However, assumptions about an underwriter’s reputation only hold true if the stock exchange is mature. In emerging or less developed markets, the reputation of an underwriter has no bearing on the quality or potential of the IPO it pairs with.

In an emerging market, the study finds, investors should pay attention to how much the underwriter charges a given IPO for their services. The higher the fee, the riskier it would be to invest in the IPO firm.

To arrive at their findings, the researchers leveraged a unique opportunity in China’s ChiNext Exchange. When ChiNext opened in 2009, regulations were low. Banks faced little consequence for underwriting a substandard IPO. Numerous IPOs on ChiNext were discovered to have engaged in accounting malpractice and inaccurate reporting, resulting in financial losses for investors and eroding confidence in the capital markets. So, for 18 months during 2012-2013, ChiNext closed. When it reopened, exchange reforms were stricter. And suddenly, underwriter reputation became a more reliable marker of IPO quality.

“Our research shows how priorities evolve as markets mature,” Zhang says. “In a new or developing exchange without established regulations, underwriter fees paid by IPO firms dictate the underwriter-company partnership. But as markets reform and mature, reputation and quality become the driving factors.”

The study makes a critical intervention in the understanding of market mechanisms. The findings matter for companies, investors and regulators across societies, highlighting how incentives shift, markets evolve and economic systems work.

The research opens the door to other areas of inquiry. For example, future studies could track relationships between underwriters and companies to reveal the long-term impacts of reputation, fees and rule changes. Research along these lines could help identify best practices benefiting all market participants.

“In the future, researchers could explore how cultural norms, regulations and investor behaviors influence IPO success,” says Li. “Long-term studies on specific underwriter-firm pairs could reveal insights into investor confidence and market stability. Understanding these dynamics can benefit companies, investors and policymakers alike.”

Yan “Anthea” Zhang is the Fayez Sarofim Vanguard Professor of Management – Strategic Management at Rice Business.

Haiyang Li is the H. Joe Nelson III Professor of Management – Strategic Management at Rice Business.

For more information, read “Who do you take to tango? Examining pairing mechanisms between underwriters and initial public offering firms in a nascent stock market” Strategic Entrepreneurship Journal 16.1 (2022): 97-128. https://doi.org/10.1002/sej.1414

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The first year in any new job is getting to know the people, the culture and the place — and I have spent the last few months doing just that. I’ve sipped Audrey’s coffee with staff to learn more about the services and opportunities we offer students. I’ve talked with faculty members to learn more about their research. And I’ve had great conversations with alumni about their career paths and story ideas.

When work is all said and done at the office, I’ve spent a lot of time getting to know the very cool city of Houston — its neighborhoods, like the Heights and Montrose; its outdoor walking spots, including Hermann Park and the new land bridge in Memorial Park; and its food, from the obvious Tex-Mex and barbecue delights to the extensive global cuisine that Houston offers, including any African, French, Mexican, Indian or Asian dish you’re after.

But our location gives us so much more than delicious meals and trendy neighborhoods. We sit at the center of one of the largest, most diverse cities in the U.S. with more Fortune 500 companies than any other city except New York City. This allows us to do what great educational institutions do best: give our students and faculty the resources and connections they need to solve global problems for the betterment of all.

One of those global issues is the coming energy transition. Our location in the energy capital of the world puts Rice in an ideal spot to study one the largest issues of our time. The decades-long transition to cleaner energy will be daunting as businesses try to grapple with the right decisions to move forward. To prepare, Professor Nicola Secomandi recently took on a new role at Rice Business: senior advisor to the dean on energy transition. Secomandi will be the first to tell you that he doesn’t have definitive answers. But he does know Houston is a great spot to find them, to have these conversations, to conduct this research and to collaborate with partners in the city. — Maureen

Our location allows us to do what great educational institutions do best: give our students and faculty the resources and connections they need to solve global problems for the betterment of all.

Email: maureen.harmon@rice.edu

I quit my job. I was an associate vice president of operations for the neuroscience department at Memorial Hermann with 20 years of experience and a team of 200 behind me. I supported amazing physicians. I built new offices. I brought new capabilities and technologies to hospitals. I was helping people — administrators, staff, healthcare workers and patients. It was all so exciting — and I quit.

My intentions were good: I wanted to make an even bigger impact, one I thought I could find in a health-tech startup. But when my team dwindled from 200 to 10 overnight, I thought: I made a huge mistake.

Sure, I would have the chance to make an impact on patients if the product took off — millions of them. There were people out there who would be thrilled to take on that task, one with such an undoubtedly laudable mission, but I realized quickly that I didn’t love the day-to-day work. I realized in that “mistake” that a business’ external success isn’t where I find the most joy. In leaving my job I lost the chance to develop and mentor a large team. There weren’t established ladders for employees to climb because we were still building the infrastructure. I couldn’t help them identify and strengthen their talents because we were all wearing many hats and scrambling to make it all work with what we had.

In the past, I thrived in that startup, make-it-work-with-what-you’ve-got culture, but this time, something was missing. In those days, I learned a lesson: My true passion was people, not operations. In a big organization like Memorial Hermann, it was all so intertwined that I couldn’t see my passion clearly.

I thought a role in HR might make the perfect fit, but it turns out companies want HR employees who actually have HR backgrounds. Finally, I turned to a classmate for help. He had led HR for an international oil and gas company and connected me with colleagues of his, but he was also very honest. “You need to talk to these people to understand what their needs are, tell them who you are and find your path,” he said. “But, you know, I don’t think that it’s the path of an individual contributor in an HR department.”

He was right. And it turns out that I was wrong, not only in the idea that I should be in HR, but also in the idea that I could no longer thrive in a startup. In fact, I launched my own business, Chief Gigs — and I’m doing the best work of my life now as a business coach helping companies figure out how to unleash the talents of their people and put the right people in the right seats.

Today my work is truly fun and infinitely rewarding. I love helping companies put the pieces of their talent puzzle together. And I never would have gotten here — to this work that is making an impact not only on businesses like Fortune 1000 companies, nonprofits, startups and investment groups but on individual careers — had I not quit my job and made what I then thought was a poor choice. Turns out that misstep was actually just a step on my path.
 

Tips From the Business Coach:

Wendy Fong, partner and principal of Chief Gigs, offers a few pieces of advice to business leaders on building talent within your organization.

• Hiring someone who thinks like you isn’t always your best move:  “People’s biases are so strong, and they don’t know it. Employers tend to hire others who are like them. I found entire teams all centered around the same behavioral tendencies. That approach doesn’t offer a diversity of thought or opinion — key components to better ideas and a stronger organization.”
   
• Diversity of thought is imperative, but that doesn’t mean it’s always easy on leadership.  “You have to be able to work with different people with different work styles. They might be introverted. They might need time to think through ideas. They might want to talk through an idea with you. They might need a lot more detail than you’re willing to give. In the end, they’re going to be better able to do their job if you’re willing to invest the time in understanding — and supporting — how they work.”
   
• Ask Yourself: “How Do Others See Me?”  “Do a little research on the Predictive Index profile. It’s Iike magic. It’s a behavioral assessment like DiSC or Myers-Briggs, but the output is so intuitive. The Predictive Index consists of only two questions and takes about five minutes to complete. The Predictive Index asks: ‘Who are you?’ In other words, who do you think you are as a person? And, ‘How do you feel you’re expected to act at work?’ Let’s say you’re an independent decision-maker. You may seem overly aggressive to your colleagues or to your direct reports. The Predictive Index identifies your strengths and what I like to call ‘cautions,’ and provides insights and self-coaching questions to allow for self-reflection and adjustments.

To hear more of Fong’s story, listen to her interview on the “Owl Have You Know” podcast:

Janet Moore believes there is something interesting about everyone she meets. A look inside her office reveals plenty of interesting things about the communications leader and educator herself.

As a full-time faculty member, Moore’s expertise in leadership communication shapes the academic experience of nearly every MBA student, guiding them to develop executive presence and the ability to communicate with impact. The objects in her office, from artifacts collected on global adventures to awards recognizing her storied career, reflect the many facets of her vibrant life and work. Here are a few of the objects that make the environment almost as lively as its occupant.

1. A hand-woven Otomi tapestry. Moore, a former international lawyer and avid world traveler, once practiced law in Mexico. It was there she received the colorful stitched art.
2. An honorary consul plaque. As honorary consul to the country of Georgia, she promotes their economic and cultural relations in the state of Texas.
3. A flag for every country she’s visited or worked in. (Over 50!)
4. A luchador-style owl mask that she received while taking the first MBA@Rice Global Field Experience to Mexico City. The mask hints at her fun-loving spirit. (Case in point: She tried it on for us.)
5. A copy of “Think Faster, Talk Smarter: How to Speak Successfully When You’re Put on the Spot” by Stanford Professor Matt Abrahams. Moore’s shelves are full of must-read recommendations, but this title is her recent standout pick.
6. A large glass bowl that Moore uses to convey the idea of “executive presence.” Think of it this way: The objects you place in the bowl represent your substance (i.e., your skills, values and identity); but other people always view and evaluate those objects through an outside layer (i.e., your appearance, body language, behavior and speech) — which is represented by the glass bowl itself.

For Moore, an expert in leadership communication, personal style is a way to tell stories — both for yourself and others. She references Madeleine Albright (whom she learned from at Georgetown), whose carefully selected brooches conveyed specific messages. On the day of our photo shoot, Moore is wearing a golden bracelet that her mother wore when she defended her dissertation.

If you want to learn more about leadership and the power of personal style, stop by to see Janet Moore. You’ll leave feeling more confident about telling your own story.

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Texas’ Unemployment Rate Is Among the Nation’s Worst — But Experts Say It Signals a Growing Economy

Texas has one of the highest unemployment rates in the country — despite leading in job growth — which experts say indicates an upward economy.

According to Dean Peter Rodriguez, lower unemployment can mean people are exiting the workforce. Texas’ high rate reflects more people moving to the state and staying, which expands the labor pool and benefits employers, especially smaller firms. However, job growth is slowing in Texas, following national trends. So, while the high unemployment rate indicates a rapidly growing labor force and economy, hiring seems to be slowing in line with the rest of the nation.

Oct. 3, 2023 | Maia Pandey

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There’s a Reason a Killer Money-Saving App Still Doesn’t Exist

Budgeting apps like Mint have struggled to build a sustainable business of helping people spend less. Mint shut down Jan. 1, 2024, joining other failed personal finance apps. The problem is that few people want budgeting help, and even fewer will pay for that help. Apps battle high costs of aggregating financial data and low engagement from users.

As marketing professor Utpal Dholakia says, “Someone is going to become really, really rich if they can figure out how to get unmotivated people interested in really thinking about money.” Banks now offer free budgeting tools but lack the excitement of social media. Budgeting isn’t a “dopamine hit,” says Mint’s founder; it’s an adult responsibility. Motivating the unmotivated to budget remains an elusive pot of gold.

Nov. 16, 2023 | Imani Moise

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U.S. Institutions Under Fire for Their Support — or Silence — on Israel

Companies, universities, and politicians have struggled with how to respond to the Israel-Hamas conflict. Condemning violence on both sides or expressing support for Israelis and Palestinians has drawn criticism. Professor Vikas Mittal says companies should avoid statements that take sides, given how quickly they spread online. He advises saying nothing or, before speaking, taking a few days to carefully deliberate.

Mittal cautions against “condemning this or that” and says companies should listen first rather than quickly commenting. In this heated moment, there are messaging risks either way organizations respond (or don’t respond).

Oct. 14, 2023 | Laura Meckler, Tim Craig and Aaron Gregg

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Upstarts Challenge a Foundation of Modern Investing

A recent argument has erupted among finance professors over changes made to some very important data created by researchers Kenneth French (Dartmouth) and Nobel Prize-winning economist Eugene Fama (Chicago). These data help investors decide which stocks to buy based on factors like company size and share price. While some researchers are worried that the changing data was not fully explained and could lead to manipulated results, others like Rice Business professor Robert Dittmar say they should be careful criticizing such respected work.

Dittmar quotes a line from the TV show “The Wire”: “You come at the king, you best not miss.” He says most attempts by other researchers to perfectly re-create Fama and French’s data have failed, showing how complex their calculations are.

As a result of the controversy, Fama and French have provided more transparency by releasing their previous data versions online. They have defended the reasons behind updating their groundbreaking research on market factors, like finding undervalued stocks.

Mar. 11, 2024 | Mary Childs and Justina Lee

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‘Portfolio Careers’ are Becoming More Popular. Is it Just Rebranding Hustle Culture?

Professor Scott Sonenshein says the popularity of portfolio careers started rising around 2014 with the sharing economy and gig platforms. His early research found people with multiple jobs had diverse backgrounds — from high-skilled consultants to Uber drivers.

This trend accelerated during the pandemic, as people sought control amid uncertainty. Sonenshein says economic necessity still drives many to patch together multiple income streams. But increasingly, portfolio careers appeal to people seeking meaningful, engaging work and better work-life balance. This autonomy does pose a risk, however. The lack of built-in boundaries and structures for success can lead some to constantly work and fall into the traps of hustle culture.

Dec. 10, 2023 | Anisa Purbasari Horton

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