A study on CEO experience and its effect as a signalling mechanism on IPO underpricing

Sammanfattning: We examine if CEO experience functions as a signalling mechanism in initial public offerings (IPOs), reducing information asymmetry and consequently, IPO underpricing. To investigate this, we perform a multiple OLS regression on a hand-collected sample of 220 IPOs on Nasdaq Stockholm between 1 January 2010 and 15 March 2021. Four variables are used as a proxy for the broader concept of CEO experience, namely prior CEO experience, network, tenure, and age. First, we find that prior CEO experience is associated with lower IPO underpricing, suggesting that it successfully functions as a signal of the firm's quality at the time of the IPO. Second, in contrast to what we proposed, we find that both CEOs with stronger network and longer tenure leads to more IPO underpricing. Third, our results do not evidence a statistically significant relationship between CEO age and IPO underpricing. Our study confirms existing academic research that demonstrates the importance of the CEO in an IPO process, albeit our findings are unique in a Swedish context.