Social Capital and the Pricing of Initial Public Offerings

Veeraraghavan, Madhu and Chen, Yangyang and Duong, Huu Nhan and Goyal, Abhinav (2023) Social Capital and the Pricing of Initial Public Offerings. Journal of Empirical Finance. pp. 1-22.

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Abstract

Using a large sample of 4,892 IPOs in the United States, we establish that the level of social capital in the county of the IPO firm’s headquarters is negatively associated with the level of IPO underpricing. The results hold for a range of robustness tests, including those addressing endo�geneity. Additionally, the relation between social capital and IPO underpricing is weaker among IPO firms with less information uncertainty and stronger for IPO firms with more agency prob�lems. We also show that social capital affects IPO underpricing through changing IPO firms’ earnings management activities. Further, high social capital is associated with a higher likelihood of the IPO being oversubscribed, higher total proceeds raised in the IPO, a greater number of IPO shares issued, and lower total IPO administrative fees. Social capital also influences seasoned equity offerings (SEOs), in the form of lowering SEO underpricing and SEO discount. Overall, our results demonstrate the importance of social capital as an informal contracting mechanism in enhancing the pricing and performance of firm securities issuance.

Item Type:	Article
Uncontrolled Keywords:	Social capital IPO underpricing Earnings management Informal contracting mechanisms
Divisions:	Marketing Management
Depositing User:	Mr. Mahesha Havanje
Date Deposited:	17 Oct 2023 07:56
Last Modified:	11 Mar 2024 08:57
URI:	http://tapmi.informaticsglobal.com/id/eprint/797

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