The Impact of Board Heterogeneity on IPO Underpricing

Do Firm- and Board-specific Characteristics Corroborate Underpricing? A Study on the Indian IPOs

“…In contrast, Hearn (2011) in his study in sub-Saharan Africa found a positive impact of the size of the board on underpricing, indicating the communication gap due to the larger board and resulting increased information asymmetry; results obtained similar to results of Bathula (2008) in New Zealand and Mnif (2009) in France. Also, an insignificant relation was reported by Howton et al (2001) and Xu et al (2017). These mixed results across various economies call for studying this governance mechanism of Indian IPO firms which are largely dominated by promoter ownership and their subsequent control over appointments of directors.…”

“…Large size of the board can have two implications, either it can enhance monitoring efficiency or it can make decision-making rigid and slow, which necessitates striking a trade-off between these two extreme implications (Harford, Mansi, & Maxwell, 2008;Mishra & Kapil, 2017). Prior research has given ambiguous results for the impact of size of the board (Xu et al, 2017). Yermack (1996) in his study on US firms found that a smaller size of boards had a positive impact on overall performance of the firm.…”

“…Guenther and Willenborg (1999) and Bédard, Coulombe, and Courteau (2008) are some of the researchers whose studies controlled the influence of the issue price by taking its inverse transformation. Among firm-related controls, many studies related to IPOs have also controlled the influence of age of the firm at the time of going public (Reutzel & Belsito, 2015;Xu et al, 2017), for its probable influence on underpricing as mature firms are relatively less impacted by the liability of market newness (Singh, Tucker, & House, 1986). Table 1 presents the composition of variables included in the study.…”

“…Certo (2003) contends that these firms suffer from 'liability of market newness'. Like many previous studies drawing support from the signalling theory (Spence, 1974), firms need to send signals of their good quality to external investors to show that the firm is worth their investment (Xu, Wang, & Long, 2017). Some of the information signals under the wide umbrella of corporate governance studied for their impact on underpricing by inhibiting information asymmetry include auditor reputation (Beatty, 1989), underwriter reputation (Carter & Manaster, 1990), venture capitalist association (Megginson & Weiss, 1991), anchor investors' participation (Sahoo, 2017), IPO grading (Chhabra, Kiran, & Sah, 2017) and so on.…”

A Review of IPO Under-pricing Phenomenon in Asia

“…Finally, they reported that corporate governance measures had a minuscule contribution in explaining the under pricing of Indian IPOs and indicated that investors did not incorporate these as a major consideration in their investment decision. Xu et al (2017) investigated the effect of boardroom heterogeneity on IPO under pricing. Boardroom heterogeneity is characterized by the functional background, educational background, age, and length of tenure.…”