Unionization and IPO Underpricing
59 Pages Posted: 25 Jun 2018
Date Written: June 10, 2018
This paper investigates the impact of labor unionization on IPO underpricing. We demonstrate that the existence of unions reduces underpricing by 10.91%. Unionized IPOs are associated with downward offer-price revisions, lower aftermarket volatility, inferior firm performance, and incremental failure risk. We argue that unions’ presence discourages investor participation and investor demand for IPOs. Further, by employing Right-to-Work laws as an exogenous variation in the strength of labor unions, we determine that the effect that unions have on first-day returns is more noticeable in areas with incremental union power. 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