Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Abstract

While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder-CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment.3

Board Interlocks and Initial Public Offering Performance in the United States and the United Kingdom: An Institutional Perspective

“…Specifically, we show that the extent of directors' interlocks in the United Kingdom is more strongly related to CEO interlocks than in the United States. Such a finding, we argue, is consistent with the institutional perspective on corporate governance that considers governance factors as drivers of the firm's legitimacy among the stock market participants (Bell et al, 2014;Moore et al, 2012). Our empirical results show that CEOs', internal board members', and external board members' interconnections with other actors are more important to IPO valuations in the United Kingdom than in the United States.…”

Law, finance, and the international mobility of corporate governance

“…For example, Moore, Bell, Filatotchev, & Rasheed (2012) advance a comparative institutional perspective to explain capital market choice by firms going public via initial public offering (IPO) in a foreign market. Based on a sample of 103 US and 99 UK foreign IPOs during the period 2002-2006, they find that internal governance characteristics (founder-CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms.…”

Location Decisions and the Liability of Foreignness: Spillover Effects Between Factor Market and Capital Market Strategies

“…The institutional perspective from the field of international business is guided by the assumption that not only firm or industry characteristics, but also the institutional context matters for host-market internationalization strategies (Bell et al, 2014;Meyer et al, 2009;Moore et al, 2012). The institutional perspective ties in with the LOF concept, because MNEs unfamiliar with the institutional environment in their host country are not able to mimic local firms, leading to increased legitimacy hazards (Eden and Miller, 2004;Peterson and Pedersen, 2002;Zaheer, 1995).…”