IPO Price Formation and Board Gender Diversity (Revision 2 )

In January 2020, Goldman Sachs announced that it would no longer underwrite the IPOs of firms with all-male boards, stating that gender-diverse board firms outperform non-diverse board firms. Using a sample of IPOs from 2000–2018, the authors find that IPOs experience significantly greater first trading day returns (i.e., greater underpricing) when the firm’s board has at least one female director on it, relative to when no women sit on the board. They do not, however, find that gender diverse board firms have significantly different short- or long-run performance after the first trading day. The authors find evidence that the underpricing effect is driven by increased institutional investor demand for board gender diversity over the most recent decade. Board gender diversity is unrelated to the offer price adjustment made before the issue date, suggesting that no partial price changes occur to incorporate investor preferences for gender diversity into the final offer price. Instead, the authors find that the underpricing effect is attenuated for IPOs with well-connected underwriters, which suggests that the underpricing effect may be due to an early unawareness of investors’ preference for board gender diversity.