Impact of insiders and outsiders of entrepreneurial firms on valuation in initial public offering

Abstract

The studies of initial public offering pricing had been a popular interest of academic research recently, but there is still little study for entrepreneurial firms now. Under the asymmetric information hypothesis and signaling theory, we try to find some factors affecting the initial public offering pricing of entrepreneurial firms. Based on the 153 listed firms on China's Growth Enterprise Market, we do an empirical test for the correlation between initial public offering pricing and board of director independency, top management team ownership, venture capital existence, and reputation of underwriter. Finally, some research hypotheses are verified. As a result, we find that the top management team's ownership is significantly correlated to initial public offering pricing which means that the top management team plays a more important role in pricing of entrepreneurial firms as an insider, compared to board of director independency as an outsider's role. Also, we find that venture capital backing is significantly correlated to initial public offering pricing while underwriter reputation is not, which means that venture capital plays a more important role in pricing of entrepreneurial firms as an insider after it invested, compared to underwriter as an outsider.