Abstract
We find that Initial Public Offering (IPO) firms led by CEOs with superior educational credentials — in terms of level and quality — are associated with lower levels of IPO underpricing. This association is mainly driven by CEOs that hold advanced degrees. Notably, a difference-in-difference approach based on two quasi-natural experiments indicates that the impact of CEO education on IPO underpricing is more pronounced within environments characterized by lower information transparency. The baseline results also hold in the longer term, thereby confirming the value of signaling prestigious academic awards at the time of the IPO.
Highlights
We examine whether heterogeneity of CEO academic qualifications matters in explaining the performance of Initial Public Offerings (IPOs)
We explore the impact of CEO academic achievements on the most notable entrepreneurial setting, namely, Initial Public Offerings (IPOs)
Educational credentials may be especially influential in communicating organizational legitimacy (Spence, 1974), since investors planning to invest in an IPO are likely to attend to such signals in order to reduce perceptions of uncertainty about the credibility of an IPO as an investment (Sanders and Boivie, 2004)
Summary
We examine whether heterogeneity of CEO academic qualifications matters in explaining the performance of Initial Public Offerings (IPOs). As a determinant of human capital, education potentially impacts a CEO in three mutually non-exclusive ways: (1) education can potentially enhance a CEO’s knowledge, skills, perspective, and ability to understand technical and abstract concepts (Bai et al, 2018); (2) higher education could be a signal of a CEO’s unobservable but influential talent, intellect and capability to persevere in challenging activities (Certo, 2003); (3) the social networks acquired in college and graduate school can be helpful professionally in the future (Datta and Iskandar-Datta, 2014) Based on these arguments, it is conceivable to expect that, when valuing new firms, investors may well turn their attention to CEO educational degrees to help differentiate firms of varying quality
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