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.

Citation

Xu, Z.-J., Wang, L. and Long, J. (2017), "The impact of director’s heterogeneity on IPO underpricing", Chinese Management Studies, Vol. 11 No. 2, pp. 230-247. https://doi.org/10.1108/CMS-05-2016-0095