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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

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