IPO valuation of entrepreneurial firms in China's new growth enterprise market: An examination of board composition, top management team's ownership and human capital

Abstract

Purpose

The purpose of this paper is to study whether there is correlation between valuation in initial public offering (IPO) and board composition, the ownership dispersion of top management teams (TMTs) and their human capitals, in entrepreneurial firms of China's new growth enterprise market (GEM). Also, it aims to evaluate the relative importance of various factors in determining initial public issuing value.

Design/methodology/approach

The SPSS 16.0 statistical package was used to perform the analysis. The authors compute descriptive statistics, calculate correlation coefficients for all variables and use multiple regression analysis test the hypothesis.

Findings

The paper shows that IPO valuation has significant positive correlation with board composition, significant negative correlation with TMT ownership dispersion, but it does not show significant correlation with TMT human capital. The empirical results also show that: the influence of variable “CEO also Founder” on IPO valuation is significant, which indicates that investors are concerned with the leadership of firms in IPO. Also the influence of the variable “underwriter prestige” on IPO valuation is also significant, but weaker, which indicates that investors still keep confidence in the well‐known underwriters for their vision and ability of judging the firms.

Research limitations/implications

Based on the first batch of 28 entrepreneurial firms listed on Chinese GEM, the sample size is relative small. Also, the measure of TMT human capital, defined by the education degree level, is not an accurate rule in this paper.

Originality/value

Focusing on 28 new firms in China's new security market, this paper presents some interesting and new findings, by using data from the first batch of listed companies in China's GEM, which comprises many privately‐owned, high technology and entrepreneurial firms.

Citation

Xu, Z. and Xu, L. (2012), "IPO valuation of entrepreneurial firms in China's new growth enterprise market: An examination of board composition, top management team's ownership and human capital", Journal of Chinese Entrepreneurship, Vol. 4 No. 3, pp. 206-220. https://doi.org/10.1108/17561391211262157