Valuing Soft Information: IPO Price Formation and Board Gender Diversity

Abstract

We study the relation between board gender diversity and initial public offering (IPO) price formation. We find that IPOs experience significantly greater underpricing when the firm’s board has at least one female director, relative to when no women sit on the board. The underpricing effect is not attributable to differences in profitability, growth opportunities, CSR profiles, or other firm characteristics. Instead, the underpricing effect appears to be driven by increased institutional investor demand for board gender diversity. We find evidence that underwriters with greater network centrality are better able to incorporate information about investor preferences for board gender diversity into IPO prices, reducing the underpricing effect.

Keywords: Initial Public Offerings, Information Processing, Going Public Process, Gender Diversity, Underpricing, Investment Banks, Corporate Governance, Network Centrality

JEL Classification: G24, G30, J16