Nepotism in IPOs: consequences for issuers and investors

Francois Degeorge () and Giuseppe Pratobevera ()

No 20-68, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Potential conflicts of interest arise when IPO underwriters allocate IPO shares to their affiliated funds. We hypothesize that such nepotism incentives affect IPO pricing. Using a novel hand-collected dataset, we find support for this hypothesis in a regression discontinuity design (RDD): a one percentage point increase in affiliated allocations increases underpricing by 5.4 percentage points. Our evidence suggests that nepotism has real monetary costs for IPO issuers. We also use our dataset to revisit a milder version of nepotism analyzed in prior studies, and we find much clearer support for it than prior work: we find a strong positive association between IPO underpricing and affiliated allocations, which strengthens when nepotism incentives are stronger.

Keywords: Underpricing; IPOs; Affiliated funds; Conflicts of interest; RDD (search for similar items in EconPapers)
JEL-codes: G23 G24 G39 (search for similar items in EconPapers)
Pages: 76 pages
Date: 2020-08
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3677810 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2068

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().