The impact of director’s heterogeneity on IPO underpricing

Abstract

Purpose The purpose of this paper is to investigate whether the Boardroom heterogeneity affects IPO underpricing for entrepreneurial firms, where Boardroom heterogeneity was classified in terms of functional background, educational background, age and length of tenure. Design/methodology/approach A national research design was conducted using data collected from 355 firms listed on China’s Growth Enterprise Market from its start in 2009 to 2012. Findings The author found that IPO underpricing has a significant negative correlation with functional heterogeneity, a positive correlation with educational heterogeneity, a significant negative correlation with age heterogeneity, but it does not show significant correlation with heterogeneity in tenure. Board heterogeneity affects IPO underpricing of entrepreneurial firms partially, which means functional, educational and age heterogeneity conveys signals to potential investors regarding a firm’s quality. Research/limitations/implications More entrepreneurial firms in more years for data and long-term performance research design in future research would be required for further understanding of the relationships among the variables in this study. Practical/implications This paper suggests that IPO firms may make use of such an influencing mechanism to determine the issue price or to control the IPO underpricing by showing the Boardroom heterogeneity. Originality/value This paper revealed the influence of the characteristics of board members of such firms on IPO underpricing, which is rare in recent studies comparing to the study for the top management team; also this study provides empirical support for such effect.

Effect of Composition of Board and Promoter Group Retained Ownership on Underpricing of Indian IPO firms: An Empirical Study

“…Handa and Singh (2017) contend that listing delay represents a degree of informed demand made by investors. Previous empirical studies have also controlled age of firm for its impact on underpricing (Reutzel & Belsito, 2015; Xu et al, 2017) as Singh, Tucker and House (1986) are of the view that older firms are relatively less affected by liability of market newness. With regards to offer price, an investor invests with confidence when this price reflects the risk he is taking and will be sufficiently rewarded in future for taking this risk by realising it in capital market (Fama, 1980).…”

“…IPO firms need to overcome this ‘liability of market newness’ (Certo, 2003). Many studies related to IPO keep signalling theory (Spence, 1974) as their base as it also captures information asymmetry, an inherent part of IPO, suggesting that IPO firms need to send signal to potential investors showing that the firm is worth investing (Xu, Wang, & Long, 2017). In this tech-savvy environment, information is readily and rapidly available to potential investors, and it also puts its impact on pricing performance of IPOs (Chhabra, Kiran, & Sah, 2017).…”

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“…"Good" reputable auditors charge higher auditing fees for higher-quality reporting (Michaely & Shaw, 1995;Khurana, Ni, & Shi, 2017). Finally, board reputation is considered to be costly and very problematic for low-quality firms to imitate (Certo et al, 2001;Yatim, 2011;Xu, Wang, & Long, 2017).…”

Underpricing Process of IPOs in Tunis Stock Exchange: An Agent-Based Modelling Approach

“…For proposed models, the phenomenon of undervaluation during the introduction of companies on the stock market has been explained by quantitative and qualitative variables, internal and external to the company and before and after the launch introduction. Our empirical study is developed to detect the undervaluation of the shares newly introduced on the Tunisian financial market and this through models which respectively link the discount to the asymmetry of information, liquidity, allocation and governance of the company, Zhang, F., and al., (2020); Xu, Z.-J., and al., (2017); ; Ammer, M.A. and Ahmad-Zaluki, N.A.…”