Board Financial Expertise and IPO Performance: An Analysis of U.S. Public Offerings and Withdrawals

Corporate Ownership & Control, 18(3), 307–324, 2021. https://doi.org/10.22495/cocv18i3siart6

18 Pages Posted: 23 May 2021

See all articles by Marvin Nipper

Marvin Nipper

University of Duisburg-Essen - Mercator School of Management

Date Written: May 18, 2021

Abstract

Potential investors examine governance characteristics prior to an initial public offering (IPO) to assess the quality and prospects of the issuing firm. One important governance characteristic is board financial expertise, as it provides directors with the relevant knowledge for an IPO process and is valuable for the board’s monitoring duties. Therefore, the purpose of this paper is to examine whether and how board financial expertise affects IPO outcomes. To do so, I employ a sample of 414 completed and 85 withdrawn IPOs that were filed from 2014–2017 at NYSE or NASDAQ. I document that the ratio of directors with financial expertise on the board is negatively associated with the level of underpricing and the probability of IPO withdrawal. The results suggest that particularly outside directors with financial expertise have a positive signaling effect and help to reduce information asymmetry around initial public offerings. Above that, using quantile regression, I find that director financial expertise is most valuable for issuances with high levels of investor uncertainty. Therefore, this study makes important contributions to the corporate governance and IPO literature by providing a comprehensive analysis of the effects of board financial expertise on IPO outcomes.

Keywords: Initial Public Offerings, Underpricing, Board Composition, Board of Directors, Financial Expertise

JEL Classification: G12, G14, G34

Suggested Citation

Nipper, Marvin, Board Financial Expertise and IPO Performance: An Analysis of U.S. Public Offerings and Withdrawals (May 18, 2021). Corporate Ownership & Control, 18(3), 307–324, 2021. https://doi.org/10.22495/cocv18i3siart6, Available at SSRN: https://ssrn.com/abstract=3848717

Marvin Nipper (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstraße 65
Duisburg, Nordrhein-Westfalen 47057
Germany
00492033792643 (Phone)

HOME PAGE: http://www.uni-due.de/rwpc

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