Unionization and IPO Underpricing
48 Pages Posted: 25 Jun 2018 Last revised: 14 Oct 2019
Date Written: October 10, 2019
This paper investigates the impact of labor unionization on IPO underpricing. We demonstrate that the existence of unions reduces underpricing by 11.20%. Unionized IPOs are associated with downward offer-price revisions, higher cost of capital, inferior firm-operating performance, and incremental failure risk. We argue that union presence discourages investor participation, since investors discount the value of unionized IPOs. We conclude that labor unionization is an important factor in IPO pricing and first-day returns. Our findings are of particular interest to managers, labor unionists, and market participants.
Keywords: Initial Public Offerings, IPO Underpricing, Labor Unions, Unionization
JEL Classification: G10, G39, J50, J51
Suggested Citation: Suggested Citation