Nepotism in IPOs: consequences for issuers and investors

82 Pages Posted: 21 Aug 2020 Last revised: 9 Sep 2020

See all articles by Francois Degeorge

Francois Degeorge

University of Lugano - Faculty of Economics; Swiss Finance Institute; European Corporate Governance Institute (ECGI)

Giuseppe Pratobevera

University of Bristol

Date Written: August 20, 2020


Potential conflicts of interest arise when IPO underwriters allocate IPO shares to their affiliated funds. We hypothesize that such nepotism incentives affect IPO pricing. Using a novel hand-collected dataset, we find support for this hypothesis in a regression discontinuity design (RDD): a one percentage point increase in affiliated allocations increases underpricing by 5.4 percentage points. Our evidence suggests that nepotism has real monetary costs for IPO issuers. We also use our dataset to revisit a milder version of nepotism analyzed in prior studies, and we find much clearer support for it than prior work: we find a strong positive association between IPO underpricing and affiliated allocations, which strengthens when nepotism incentives are stronger.

Keywords: Underpricing, IPOs, Affiliated funds, Conflicts of interest, RDD

JEL Classification: G23, G24, G39

Suggested Citation

Degeorge, Francois and Pratobevera, Giuseppe, Nepotism in IPOs: consequences for issuers and investors (August 20, 2020). Swiss Finance Institute Research Paper No. 20-68, European Corporate Governance Institute – Finance Working Paper 696/2020, Available at SSRN: or

Francois Degeorge

University of Lugano - Faculty of Economics ( email )

via Giuseppe Buffi 13
CH-6904 Lugano
41 58 666 4634 (Phone)
41 58 666 4647 (Fax)

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Giuseppe Pratobevera (Contact Author)

University of Bristol ( email )

University of Bristol,
Senate House, Tyndall Avenue
Bristol, BS8 ITH
United Kingdom

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