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CEO hometown ties and initial public offering underpricing: Evidence from China's listed firms

International Review of Financial Analysis, ISSN: 1057-5219, Vol: 97, Page: 103851
2025
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Article Description

We examine the impact of an initial public offering (IPO) CEO hometown ties (local IPO) on IPO underpricing. Our findings suggest that local IPOs, on average, exhibit lower underpricing than those of non-local IPOs. Depending on models, the lowered underpricing for local IPOs ranges from approximately 26 to 31 % points less than non-local IPOs. The results are consistent with the notion that the hometown ties provide valuable information to the investors, which increase their willingness to purchase the firm's initial shares at a higher price and thus alleviates the IPO underpricing. In addition, we document that the impacts of CEO hometown ties on lower underpricing are more salient when the CEO has a lower education level, the IPO firm has a better information environment, the IPO is offered when the market sentiment is high, or after the underpricing limit regulation in 2014. Our results suggest that hometown ties serve as an important signal that reduces the information asymmetry between the firm and the IPO investors, resulting in an improvement in IPO's pricing.

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