Finance Series
Nepotism in IPOs: consequences for issuers and investors
Working Paper Author/Authors
Swiss Finance Institute, University of Lugano
Abstract
IPO underwriters have an incentive to underprice an IPO when they allocate shares to their affiliated funds. We label this conflict of interest “supernepotism” and we analyze its effect on IPO pricing. Using a regression discontinuity design (RDD) on a novel hand-collected dataset, we find that higher allocations to underwriter-affiliated funds cause higher IPO underpricing. Our evidence suggests that supernepotism has monetary costs for issuers.
Published in
Forthcoming, Journal of Financial and Quantitative Analysis
