Nepotism in IPOs: consequences for issuers and investors

Nepotism in IPOs: consequences for issuers and investors

François Degeorge, Giuseppe Pratobevera

Series number :

Serial Number: 
696/2020

Date posted :

September 10 2020

Last revised :

January 26 2022
SSRN Share

Keywords

  • underpricing • 
  • IPOs • 
  • Affiliated funds • 
  • conflicts of interest • 
  • RDD

IPO underwriters have an incentive to underprice IPOs when they allocate IPO shares to their affiliated funds. Using a novel hand-collected dataset, we find that such nepotism incentives affect IPO pricing. In a regression discontinuity design (RDD) we find that a one percentage point increase in affiliated allocations increases underpricing by 5.4 percentage points.

Our evidence suggests that nepotism has real consequences for IPO issuers. We also revisit a milder version of nepotism analyzed in prior studies and find much stronger support for it than prior work.

Authors

Real name:
Giuseppe Pratobevera