How Does Corporate Culture Affect IPO Price Formation?
48 Pages Posted: 18 Feb 2022 Last revised: 26 Mar 2024
Date Written: February 11, 2022
Abstract
We examine the relationship between corporate culture and initial public offering (IPO) price formation. Using a sample of 935 US IPOs and data on corporate culture from Li et al. (2021), we find that IPOs of strong culture firms are associated with more positive price revisions and higher initial returns, i.e., more underpricing. These findings hold using an alternative measure of corporate culture, matched samples, and a large set of control variables. Consistent with key theories, the effects appear to be driven by underwriters deliberately compensating investors for revealing information about the firm's culture during bookbuilding.
Keywords: IPO, Corporate Culture, Underpricing, Management Experience, Signaling Theory
JEL Classification: G12, G14, G30, Z10
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