Association between independent audit committee members' human‐resource features and underpricing

Abstract

Purpose -The primary objective of this paper is to examine the association between the seven human-resource features (spanning three major themes: qualifications and credentials; business and initial public offering (IPO) launch experience; and diversity) of independent audit committee members and the level of underpricing. Design/methodology/approach -A sample of 410 Singapore IPOs listing on the stock exchange of Singapore from January 1, 1997 to December 31, 2006 was used. Findings -Empirical results overall suggest no overwhelming association between the human-resource features of IPO audit committees and underpricing. Rather, the findings suggest only some specific human-resource features (e.g. presence of an independent audit committee member with accounting qualifications and credentials) are of significance. Others (e.g. gender diversity of independent audit committee members) have little or no association. Also, results do not suggest a major category of human-resource features (i.e. qualifications and credentials, business and IPO launch experience, or diversity) is associated with underpricing. Time also does not appear to affect the results. Practical implications -As human-resource features tended to increase rather than lower an IPO's cost of capital, or had not influence at all, our findings generally do not support some policymakers' arguments for the introduction of mandated uniform audit committee structures. Rather, the results support flexibility to determine the properties of the audit committee. Originality/value -This study is one of the first (particularly outside the USA) to investigate linkages between audit committee human-resource features and underpricing. Whilst acknowledging some caveats associated with this study, such as focusing on a single nation, this paper contributes relevant insights to the debate about audit committee effectiveness.

Do Firm- and Board-specific Characteristics Corroborate Underpricing? A Study on the Indian IPOs

“…It shows that a higher issue price attenuates the prevailing information asymmetry and as put by Krishnamurti, Thong, & Vishwanath (2009), resulting in the higher issue price and subsequently lower underpricing. Age of the firm at the time of going public with loose statistical significance has a positive relation with underpricing similar to findings of Mitchell Van der Zahn, Singh, and Singh (2008) in Singapore and Hearn (2012) in sub-Saharan Africa. This shows that older the firm more the positive value associated with the market reflected in excess initial returns.…”

Impact of Auditor and Underwriter Reputation on Underpricing of SME IPOs in India

“…The positive relationship between underpricing and underwriter reputation has been documented in studies such as Beatty and Welch (1996), Mitchell Van der Zahn, Singh, and Singh (2008), Chahine and Tohmé (2009), Liu and Ritter (2011), Gao et al (2015), Thorsell and Issakson (2014). The explanation for positive relation is that reputed underwriters help in reducing the information asymmetry and uncertainty regarding the IPO.…”

“…In contrast to Beatty and Ritter (1986), Johnson and Miller (1988), Reutzel and Belsito (2015), Dhamija and Arora (2017), Sundarasen et al (2018) which reported negative relationship and Beatty and Welch (1996), Mitchell Van der Zahn, Singh, and Singh (2008), Chahine and Tohmé (2009), Liu and Ritter (2011), Thorsell and Issakson (2014),Gao et al (2015), Alvarez-Otero and Lopez-Iturriaga (2018) which reported positive relationship between underwriter reputation and underpricing, various other studies such as Shin (2010), Tian (2012), Anderson, Chi, and Wang (2015), Velamuri and Liu (2017), Bhattacharya (2017), Badru and Ahmad-Zaluki (2018) reported insignificant relation between the two. In the context of our study in Indian setting in case of SMEs, the positive relation between underwriter reputation and underpricing has been hypothesized in present study.…”

Effect of Composition of Board and Promoter Group Retained Ownership on Underpricing of Indian IPO firms: An Empirical Study

“…In line with the findings of Su and Fleisher (1999), issue price shares a negative relation with underpricing which means lower the issue price higher will be the listing day return. Firm age, though, shares an insignificant relation with adjusted underpricing, the non-negative coefficient is explained by Mitchell Van der Zahn, Singh, and Singh (2008) in Singapore and Hearn (2012) in Sub-Saharan Africa suggesting that investors highly value old firms having a long operating history as mature firms ameliorate fears of investors regarding its future performance.…”