Corporate governance and IPO underpricing: evidence from the italian market

Abstract

This paper aims to analyse the impact of firms’ corporate governance characteristics on the degree of first-day returns (i.e., underpricing) in the Italian initial public offering (IPO) market. In particular, this work investigates the impacts of the characteristics of boards of directors (BoDs) and ownership structure on the underpricing of newly offered shares. By studying a sample of 128 Italian IPOs between 2000 and 2016, it is concluded that corporate governance characteristics affect the degree of first-day returns following a company’s IPO. More specifically, the size of the BoD negatively affects underpricing, while the ownership of institutional investors and board members has a positive effect on the degree of underpricing. Conversely, no significant evidence is found with regard to board independence, the number of female directors in the boardroom, the implementation of stock option plans and ownership concentration.

The Role of Corporate Governance and its Significance on the Share Price Movements of Banking Financial Institutions Listed on DSE

“…Additionally, research has determined that the Board of Directors has a negative impact on under-pricing while the ownership of institutional investors and board members has a beneficial impact. In contrast, no conclusive evidence is discovered regarding ownership concentration, stock option implementation, board independence, or the proportion of female directors in the boardroom (Teti & Montefusco, 2021). According to (Dewri, 2021) a strong correlation between firm value and return on stock and corporate governance, financial performance, and enhanced economic value added attributes.…”

The determinants of IPO initial returns in emerging markets: a quantile regression

“…BSZ, BIND, and OC can be used to signal the quality of the issuing company to investors (Yatim, 2011;Darmadi and Gunawan, 2013;Badru et al, 2017). However, mixed empirical evidence has been found regarding the impact of BIND, BSZ, and OC (Teti and Montefusco, 2021). Darmadi and Gunawan (2013) detect a positive relationship between underpricing and BIND, implying that external managers are unable to reduce agency problems, and therefore, cannot alleviate underpricing.…”

“…In other words, a larger number of independent mangers results in a more effective monitoring system. Thus, it is likely to lead to better company financial performance (Teti and Montefusco, 2021). Yet, Yatim (2011) did not find any significant relationship between those variables in Malaysia.…”

“…Moreover, this negative link may be justified by the resource-based argument. This argument claims that investors prefer boards with a larger number of seats because larger boards are likely to have access to large external funds (Teti and Montefusco, 2021). Results of Darmadi and Gunawan (2013) confirm the negative association between BSZ and underpricing.…”

“…Effective corporate governance (CG) is deemed capable of reducing conflicts amongst stakeholders and signalling the firm's quality to external parties. Thus, CG is predicted to influence the magnitude of underpricing (Teti and Montefusco, 2021). Moreover, Jamaani and Ahmed (2021) document that country-level features account for 22, 5 and 25% of underpricing variations across G20, developed, and developing countries, respectively.…”