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Nepotism in IPOs: Consequences for Issuers and Investors

Published online by Cambridge University Press:  08 April 2025

François Degeorge  and
Giuseppe Pratobevera Open the ORCID record for Giuseppe Pratobevera [Opens in a new window]
François Degeorge
Affiliation:
Università della Svizzera italiana and Swiss Finance Institute [email protected]
Giuseppe Pratobevera*
Affiliation:
University of Bristol Business School
*
[email protected] (corresponding author)
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Abstract

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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 data set, we find that higher allocations to underwriter-affiliated funds cause higher IPO underpricing. Our evidence suggests that supernepotism has monetary costs for issuers.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 31
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

The authors thank an anonymous referee, four anonymous practitioners, Sonny Biswas, François Derrien, Michel Dubois, Ran Duchin (the editor), Laurent Frésard, Peter Gruber, Gerard Hoberg, Guillem Ordonez-Calafi, Dirk Jenter, Fabrizio Mazzonna, David Oesch, Neslihan Ozkan, Jay Ritter, René Stulz, Gabriela Znamenackova, and seminar participants at the 2019 Danish Finance Institute Conference, the 2018 European Winter Finance Summit, the 2018 Swiss Society for Financial Market Research SGF Conference, and the 2017 Swiss Finance Institute Research Days for helpful comments and discussions. The authors are grateful to the web group and Investment Management Division of the Securities and Exchange Commission for their valuable suggestions and clarifications during the data collection phase. The authors thank Jay Ritter for making IPO data available on his website, and Kenneth French for making the Fama–French industry classifications available on his website. All errors and omissions are the responsibility of the authors.

Funding: Pratobevera acknowledges support from the Swiss National Science Foundation (projects P2TIP1_184156 and PDFMP1_141723).

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