Corporate governance and IPO underpricing in a cross‐national sample: A multilevel knowledge‐based view

Judge, William Q.; Witt, Michael A.; Zattoni, Alessandro; Talaulicar, Till; Chen, Jean Jinghan; Lewellyn, Krista; Hu, Helen Wei; Shukla, Dhirendra; Bell, R. Greg; Gabrielsson, Jonas; López, Félix Julio Alfonso; Yamak, Sibel; Fassin, Yves; McCarthy, Daniel; Rivas, José Luis; Fainshmidt, Stav; Ees, Hans van

doi:10.1002/smj.2275

Cited by 67 publications

(52 citation statements)

References 64 publications

(74 reference statements)

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“…The list of IPOs is selected from the EURIPO database, which has been used in previous IPO studies (e.g. Chambers and Dimson, 2009;Judge et al, 2015b;Vismara, Paleari and Ritter, 2012). To guarantee comparability of corporate governance features, we also excluded IPOs of foreign firms in the German stock market.…”

Section: Sample and Datamentioning

confidence: 99%

The Board Value Protection Function in Young, Mature and Family Firms

Hülsbeck

Meoli

Vismara

2018

British J of Management

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Next to value creation, the value protection function of the Board of Directors is a widely accepted fact. Nevertheless, the current literature struggles to show a positive impact of the Board Value Protection (BVP) on firm performance. We use the decision rights model of board functions and argue the difference between board member roles (insider vs independent) and functions, to isolate the BVP from other director functions. By using the German context as a natural setting, we can isolate the BVP and show how it evolves with the firm lifecycle and owner motivations. Based on a sample of 446 initial public offerings (IPOs) from 1995 to 2015, our results show that the importance of BVP in young firms decreases with age, increases in mature firms and that this effect is stronger in family firms.

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Section: Sample and Datamentioning

confidence: 99%

The Board Value Protection Function in Young, Mature and Family Firms

Hülsbeck

Meoli

Vismara

2018

British J of Management

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“…Also, all of the firms in the sample are approved by the CSRC to go public, so there might be a potential sample selection bias that presents an interesting topic for future study. Recently, there has been growing interest examining IPO from a cross‐country viewpoint (Judge et al, ). Admittedly, some of the results of our research may be idiosyncratic to China and to its particular minority ownership mechanism.…”

Section: Discussionmentioning

confidence: 99%

Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

Wang

Jiao

et al. 2018

Corporate Governance

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Manuscript Type Empirical Research Question/Issue Prior studies on the role of state investment tend to focus on either majority state ownership or aggregating majority and minority state ownership. Drawing upon signaling theory, we theorize that the negative intent signaled by minority state ownership reduces initial public offering (IPO) market performance. In addition, we hypothesize that founders as chief executive officers and outside directors not from state‐owned enterprises, representing the positive signal of intent, can attenuate the negative effect of minority state ownership. Research Findings/Insights The empirical results, based on 274 small and private firms in China's newly launched stock market, provide support for the hypotheses based on price premium, first‐day turnover rate, first‐day price increase, underpricing, and Tobin's Q. Theoretical/Academic Implications To the best of our knowledge, this is the first study to examine how minority state ownership affects small and private firm IPO performance. It suggests new avenues of research on ownership structure and the principal‐principal problem in the corporate governance of emerging economies. This study reveals the distinctive nature and effect between controlling state ownership and minority state ownership. The current research also opens new avenues of research on applying signaling theory, signal of intent in particular, in an IPO study. Practitioner/Policy Implications This study reveals the negative intent signaled by minority state ownership in privately controlled firms at IPO due to the weak monitoring capacity, limited resource provision, and enhanced political interdependency between private controllers and minority state owners. As minority state ownership becomes a more salient phenomenon in emerging markets, it guides policy makers in governance choices for government‐funded firms.

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“…Yet, CEOs of entrepreneurial ventures oftentimes lack these characteristics because their careers tend to have been developed in small private companies (Certo, Covin, Daily, & Dalton, ). Investors therefore also pay particular attention to the board as a potential resource signal in terms of the advice it provides to the CEO in the decision‐making process, thus increasing the initial market valuation of the IPO firm (Chahine et al, ; Judge et al, ; Sundaramurthy et al, ). Specifically, prior research has suggested that the competences, skills, and relationships that the board acquires through prior experiences are good signals of an effective resource provision role of the board at the IPO stage as they are assumed to facilitate access to external resources and provide strategic advice to the managers (Arthurs, Busenitz, Hoskisson, & Johson, ; Sundaramurthy et al, ; Walters, Kroll, & Wright, ).…”

Section: Introductionmentioning

confidence: 99%

“…A costly and easily observable signal that can enhance firm value at IPO is that the firm has solid leadership, represented by the CEO (Yang, Zimmerman, & Jiang, 2011). Investors likely value CEOs with negotiating skills and knowledge about public markets that could support the firm in successfully making and developing the newly required strategies (Judge et al, 2015). Yet, CEOs of entrepreneurial ventures oftentimes lack these characteristics because their careers tend to have been developed in small private companies (Certo, Covin, Daily, & Dalton, 2001).…”

Section: Introductionmentioning

confidence: 99%

Initial public offering valuation and prior shared experience in the boardroom of threshold ventures: A study of industry effects

Pérez‐Calero

Larrañeta

Wright

2019

Corporate Governance

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Research question/issue We explore the following question: How do initial public offering (IPO) investors value the existence of prior shared experience (PSE) between the CEO and the board of threshold ventures? Research findings/insights Building on the resource provision role of the board, signaling, and the dynamics of decision making within teams literatures, our results show that extensive PSE between the CEO and the board is detrimental to IPO valuation because it augments the perceived risk of overconfidence and myopic decisions sending negative signals to investors. Yet, the industry diversity of that PSE and the level of industry ambiguity mitigate such negative signaling effects. Theoretical/academic implications We make three main contributions to the literature. First, we make a specific contribution by advancing that extensive PSE between the CEO and the board is detrimental for IPO value, unless it is mitigated by the diversity of such PSEs across different industries. Our results therefore highlight boundaries within which previously accepted findings about the positive relationship between PSE and new venture performance do not hold. Second, we enrich our understanding of the relationship between board design and industry conditions by showing that investors perceive differently the extensiveness of PSE between the CEO and the board depending on the degree of industry ambiguity. Overall, we move beyond prior research on signaling, which has tended to focus on primary intended and costly signals, exploring signals with potential negative effects at IPO. Practitioner/Policy Implications Our research has practical implications for ambitious entrepreneurial ventures trying to achieve high growth by going public in their early stages of development. Board compositions may commonly be transformed ahead of IPOs to send a signal to the potential investors about their effectiveness in meeting the strategic challenges of being in the public arena. Our findings suggest that entrepreneurs, pre‐IPO investors, and their advisors may need to adopt a fine‐grained approach to constructing effective boards at an early stage.

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Corporate governance and IPO underpricing in a cross‐national sample: A multilevel knowledge‐based view

Cited by 67 publications

References 64 publications

The Board Value Protection Function in Young, Mature and Family Firms

The Board Value Protection Function in Young, Mature and Family Firms

Entrepreneurial finance meets government investment at initial public offering: The role of minority state ownership

Initial public offering valuation and prior shared experience in the boardroom of threshold ventures: A study of industry effects

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