How Does Corporate Culture Affect IPO Price Formation?

48 Pages Posted: 18 Feb 2022 Last revised: 26 Mar 2024

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University; Birmingham Business School; European Corporate Governance Institute (ECGI)

Gerrit Köchling

Technical University of Dortmund

Daniel Neukirchen

Technical University of Dortmund

Peter N. Posch

TU Dortmund University

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

Suggested Citation

Cumming, Douglas J. and Köchling, Gerrit and Neukirchen, Daniel and Posch, Peter N., How Does Corporate Culture Affect IPO Price Formation? (February 11, 2022). Journal of Banking and Finance, Forthcoming, Available at SSRN: https://ssrn.com/abstract=4032543

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://sites.google.com/view/douglascumming/bio?authuser=0

Birmingham Business School ( email )

Edgbaston Park Road
Birmingham, B15 2TY
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://ecgi.global/users/douglas-cumming

Gerrit Köchling (Contact Author)

Technical University of Dortmund ( email )

Friedrich-Wöhler-Weg 6
Dortmund, 44227
Germany

Daniel Neukirchen

Technical University of Dortmund ( email )

Friedrich-Wöhler-Weg 6
Dortmund, 44227
Germany

Peter N. Posch

TU Dortmund University ( email )

Otto Hahn Str. 6
Dortmund, 44227
Germany

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