Executives’ characteristics and IPO performance:
evidence from U.S. IPOs

Student thesis: Doctoral Thesis

Abstract

The potential of novel mechanisms in reducing the ex-ante uncertainty of going public is discussed in this study. The mechanisms are as follows: i) by recruiting directors with entrepreneurial experience, ii) by establishing a board of directors with special education degrees, and iii) by discovering the personal traits of executives. To alleviate the scarcity of information, IPO firms could introduce these techniques to provide investors with solid, easily recognizable signals to evaluate the issuer’s standing. Regardless of whether the information gleaned hints at positive or negative outcomes, it will reduce much of the uncertainty surrounding valuations; and thus restrain the phenomenon of IPO underpricing. Enriched by hand-collected data from Securities and Exchange Commission (SEC), a regression analysis of 2,017 U.S. IPOs shows general support for our argument. First of all, we investigate the implications for serial entrepreneurs in terms of IPO valuation. Our findings show that the positive impact of board members’ entrepreneurial track record on the valuation of IPO is more salient in young and mid- age firms. Moreover, small and medium-sized businesses benefit more from entrepreneurial expertise than large corporations. the entrepreneurial experience is more effective in small and medium-sized firms than in large firms. Finally, the relation between an established track record and IPO valuation is more significant for firms with venture capital backing. Second, we unravel the conditions under which the type of education found among board members mitigates the uncertainty in new equity markets. Our results indicate that issuers in low R&D industries—as well as those faced with complex organizational structures—leave less money on the table when more executives in their boards with managerial skills. Conversely, boards with highly specialized members in small and knowledge-intensive firms are known to reduce underpricing, and are also more likely to obtain venture-capital backing before the offering. Finally, we document that both types of board education lessen IPO share-price volatility in the immediate post-issue period. Finally, we explore the association between CEO characteristics and IPO performance. The evidence from OLS and quantile regression reveals that issuers led by a CEO founder exhibit a strong positive impact on first-day returns, especially at the middle underpricing level; while underpricing contracts as the age of CEO increases, especially above the 40th percentile. Moreover, CEO founders exacerbate uncertainty about the issuers’ quality with the expansion of firms; and in large firms, mature CEOs perform better than young ones in lowering the first trading-day return. Next, issuers with a CEO founder are more likely to receive VC support before the IPO. And mature CEOs minimize risk attribute of the CEO founder. Finally, the mature CEO has a strong negative impact on initial returns only in low-R&D firms and the CEO founder has a significant positive association with underpricing in high-R&D firms.
Date of AwardSep 2021
Original languageEnglish
SupervisorKonstantinos Kallias (Supervisor), Antonios Kallias (Supervisor) & Song Zhang (Supervisor)

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