Valuing Soft Information: IPO Price Formation and Board Gender Diversity

62 Pages Posted: 12 Feb 2021 Last revised: 6 Jun 2022

See all articles by P. Raghavendra Rau

P. Raghavendra Rau

University of Cambridge

Jason Sandvik

Eller College of Management, University of Arizona

Theo Vermaelen

INSEAD - Finance; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 2 versions of this paper

Date Written: May 30, 2022

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

Suggested Citation

Rau, P. Raghavendra and Sandvik, Jason and Vermaelen, Theo, Valuing Soft Information: IPO Price Formation and Board Gender Diversity (May 30, 2022). INSEAD Working Paper No. 2022/10/FIN, European Corporate Governance Institute – Finance Working Paper No. 756/2021, Available at SSRN: https://ssrn.com/abstract=3783771 or http://dx.doi.org/10.2139/ssrn.3783771

P. Raghavendra Rau

University of Cambridge ( email )

Cambridge Judge Business School
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HOME PAGE: http://www.raghurau.com/

Jason Sandvik

Eller College of Management, University of Arizona ( email )

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United States

Theo Vermaelen (Contact Author)

INSEAD - Finance ( email )

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European Corporate Governance Institute (ECGI) ( email )

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