Signalling IPO quality through female directors

Abstract

Purpose The purpose of this paper is to investigate whether or not the presence of female directors at the time of an initial public offering (IPO) can be considered as a signal of IPO quality. Design/methodology/approach A sample of 220 Malaysian IPOs over the period of 2005–2015 was used. This study employed the mean regression technique (ordinary least squares and White’s heteroskedasticity-consistent standard errors) and the median regression technique (quantile regression) to examine the signalling power of female directors on the board at the time of an IPO. Findings The results show that the presence and proportion of female directors at the time of the IPO have negative effects on IPO initial returns (IR). The negative effects occur at both the conditional mean and the dispersion of IPO IR. These results are robust to endogeneity bias. Practical implications The findings of this study suggest that female directors on the board at the time of an IPO can be considered as a desirable signal of IPO quality. As a result, IPO issuers can consider signalling the quality of their IPOs by having female directors on their boards. Likewise, market participants can use female directors as an instrument to value an IPO. Originality/value Studies on the impact of female directors on the board have largely been centred on established companies. Thus, this study contributes to the literature by examining the signalling role of women at the time of an IPO, which is considered as a significant milestone in the lifecycle of a company.

Determinants of oversubscription of SME IPOs in India: evidence from quantile regression

“…First, a signal must be credible enough to communicate its true and intrinsic value to potential investors. For example, in the present study, signals employed like firm size (Bhattacharya, 2017;Badru and Ahmad-Zaluki, 2018;Badru et al, 2019), underwriter reputation (Loughran and Ritter, 2002;Liu and Ritter, 2011;Thorsell and Issakson, 2014) and underpricing (Allen and Faulhaber, 1989;Grinblatt and Hwang, 1989;Welch, 1989) provides the glimpse of firms' superior quality and amplitude of its risk and uncertainty to its prospective investors. Second, the signal must be available in advance for interested parties to harness it effectively.…”

“…Hence, the investors bid for offerings are likely to be higher for the firms with larger asset base as compared to firms with smaller asset base. Considering the importance of size in mitigating information skewness and shaping up the subsequent demand for offerings measured in the form of oversubscription, positive relationship has been chronicled in various empirical studies (Higgins and Gulati, 2006;Bhattacharya, 2017;Sasikirono et al, 2018;Badru and Ahmad-Zaluki, 2018;Badru et al, 2019). Aligned with the signaling theory, it has been hypothesized that H4.…”

“…Likewise, Rumokoy et al (2017), Sundarasen et al (2018) considered prestigious underwriters a costly signal to market their credibility. Similarly, only superior quality firms can have larger asset base (Badru and Ahmad-Zaluki, 2018;Badru et al, 2019) and can afford higher underpricing (Allen and Faulhaber, 1989;Grinblatt and Hwang, 1989;Welch, 1989) to lure the potential investors.…”

How discounts impact IPOs valuation performance and underpricing? A confrontation between warranted and unwarranted discounts

“…Whereby, issuers that disclose much information to the public are subject to less underpricing because they are more transparent. Regarding board determinants, there is a negative correlation with directors' board and female directors (Badru et al, 2019;Darmadi and Gunawan, 2013;Handa and Singh, 2015), yet a positive correlation with board's independence in Indonesia (Darmadi and Gunawan, 2013). Female directors on directors' board during IPOs can be considered as a desirable signal of IPOs quality.…”

Corporate governance and underpricing of small and medium enterprises IPOs in India

“…IPO, representing the momentous event in the life term of a company, is the venerable instrument for raising the non-interest bearing capital in the equity market (Badru et al , 2019). On one hand, IPO not only enables the firm to obtain additional funds for expansion and growth but also enhances the accountability and in turn reputation in market (Caselli, 2009).…”