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

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  • Guo, Zhaorui
  • Sun, Li
  • Chan, Kam C.

Abstract

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.

Suggested Citation

  • Guo, Zhaorui & Sun, Li & Chan, Kam C., 2025. "CEO hometown ties and initial public offering underpricing: Evidence from China's listed firms," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s105752192400783x
    DOI: 10.1016/j.irfa.2024.103851
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    More about this item

    Keywords

    Hometown ties; Emotion attachment; IPO; Underpricing;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • H26 - Public Economics - - Taxation, Subsidies, and Revenue - - - Tax Evasion and Avoidance

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