Is CEO Duality Always Negative? An Exploration of CEO Duality and Ownership Structure in the Arab IPO Context

19 Pages Posted: 27 Apr 2009

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business

Nicholas S. Tohmé

affiliation not provided to SSRN

Abstract

Our results contribute to the existing debate on the appropriate regulations for an effective and stable financial system in Arab countries. They offer policy-makers additional evidence on the positive impact of market openness to foreign shareholders. This paper examines the level and determinants of IPO underpricing in the MENA region. It provides evidence on the role played by foreign strategic owners in reducing agency conflicts and information asymmetries within an environment where firms may be affected by the cultural issues related to political ties and family involvement. Using all IPOs from January 2000 until the end of July 2007, we document an average IPO underpricing of 184.1 per cent. Underpricing is higher in IPO firms that have CEO duality. However, strategic shareholders, such as corporations and other industry-related investors, are likely to play a monitoring role whereas underpricing is found to be lower in firms with both CEO duality and strategic shareholder ownership. Moreover, the negative relation between underpricing and strategic blockholding is greater for foreign strategic ownership than it is for domestic strategic ownership. This paper examines the relationships between initial public offering (IPO) underpricing, CEO duality, and strategic ownership in 12 Arab countries of the Middle East and North Africa (MENA) region. Empirical This paper examines the relationships between initial public offering (IPO) underpricing, CEO duality, and strategic ownership in 12 Arab countries of the Middle East and North Africa (MENA) region. Using all IPOs from January 2000 until the end of July 2007, we document an average IPO underpricing of 184.1 per cent. Underpricing is higher in IPO firms that have CEO duality. However, strategic shareholders, such as corporations and other industry-related investors, are likely to play a monitoring role whereas underpricing is found to be lower in firms with both CEO duality and strategic shareholder ownership. Moreover, the negative relation between underpricing and strategic blockholding is greater for foreign strategic ownership than it is for domestic strategic ownership. This paper examines the level and determinants of IPO underpricing in the MENA region. It provides evidence on the role played by foreign strategic owners in reducing agency conflicts and information asymmetries within an environment where firms may be affected by the cultural issues related to political ties and family involvement. Our results contribute to the existing debate on the appropriate regulations for an effective and stable financial system in Arab countries. They offer policy-makers additional evidence on the positive impact of market openness to foreign shareholders.

Suggested Citation

Chahine, Salim and Tohmé, Nicholas S., Is CEO Duality Always Negative? An Exploration of CEO Duality and Ownership Structure in the Arab IPO Context. Corporate Governance: An International Review, Vol. 17, Issue 2, pp. 123-141, March 2009. Available at SSRN: https://ssrn.com/abstract=1375912 or http://dx.doi.org/10.1111/j.1467-8683.2008.00724.x

Salim Chahine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

Nicholas S. Tohmé

affiliation not provided to SSRN ( email )

No Address Available

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