Executive Board Member Financial Expertise and IPO Performance

Abstract

This study investigates the effects on initial public offering (IPO) outcomes of the existence and type of financial expertise of chief executive officers (CEOs) and chief financial officers (CFOs) serving on their own IPO firms’ boards. For brevity we refer to these executives as executive board members. We investigate the effects of three types of executive board member financial expertise: that obtained via accounting-based, user-based, and supervisory-based work experience. The results suggest that executive board members having accounting-based experience appear to use that knowledge and experience to decrease information asymmetry at IPO, leading to lower underpricing of initial offerings. Neither of the other two types of financial expertise for executive board members helps to improve IPO underpricing. We also find that executive board members with accounting-based experience are associated with shorter IPO preparation times, and less downward IPO offer price adjustments. Our study suggests that IPO firms experience benefits when executives having accounting expertise serve on their boards.

Keywords: Initial Public Offering, IPO, Underpricing, Financial Expertise, Corporate Governance

JEL Classification: M4, G3