CEO Social Capital and IPO Performance

40 Pages Posted: 20 Dec 2019 Last revised: 8 Jun 2020

See all articles by Dobrina Georgieva Jandik

Dobrina Georgieva Jandik

University of Arkansas

Tomas Jandik

University of Arkansas - Sam M. Walton College of Business

Weineng Xu

University of Wisconsin-Whitewater

Date Written: June 6, 2020

Abstract

Initial Public Offering (IPO) outcomes are affected by the social capital of firm’s chief executive officer (CEO), proxied by CEO’s network centrality that identifies individual position within the hierarchy of all business executives worldwide. IPOs with CEOs who possess higher social capital are associated with higher underpricing, lower likelihood of offer price increases, and lower likelihood of positive wealth effects for pre-IPO investors. The results hold after controlling for personal characteristics, firm determinants of social capital, and direct relationships between IPO firm managers and underwriters. In addition, post-IPO insider sale trades initiated by CEOs with higher social capital are followed by significantly lower abnormal equity returns, and those CEOs are also less likely to be replaced following poor post-IPO long term performance. The influence and power derived from high social capital appears to allow CEOs to achieve greater entrenchment and personal benefits, which leads to increased risk of IPOs.

Keywords: Social Capital, IPOs, Underpricing, Social Networks, Centrality

JEL Classification: G32, G40, L14

Suggested Citation

Jandik, Dobrina Georgieva and Jandik, Tomas and Xu, Weineng, CEO Social Capital and IPO Performance (June 6, 2020). Available at SSRN: https://ssrn.com/abstract=3498605 or http://dx.doi.org/10.2139/ssrn.3498605

Dobrina Georgieva Jandik

University of Arkansas ( email )

Fayetteville, AR 72701
United States

Tomas Jandik (Contact Author)

University of Arkansas - Sam M. Walton College of Business ( email )

WCOB 302
Fayetteville, AR 72701
United States
479-575-6147 (Phone)

Weineng Xu

University of Wisconsin-Whitewater ( email )

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