The Relationship Between the Board Composition and the Level of IPO Underpricing in Russian Companies

Authors

  • Valeriia Levitanus Autonomous Non-commercial Organization of Post-Graduate Professional Education “Sberbank Corporate University”

Abstract

Traditionally, the phenomenon of IPO underpricing is commonly explored in relation to financial and operational performance metrics. In this study we consider the relationship between the level of IPO underpricing and internal corporate governance mechanisms. We analyze the relationship between the board composition and the level of IPO underpricing in Russian companies, who had undergone an IPO in Russia between 2002 and 2015. Our findings demonstrate that such characteristics of the board diversity as the management experience of executives and the presence of independent directors with outside directorships in company industries or financial sector are negatively associated with IPO underpricing.

Keywords:

Board composition, IPO, underpricing, corporate governance, Russia, board diversity

Downloads

Download data is not yet available.

References

Agrawal, A., & Knoeber, C.R. (1996). Firm performance and mechanisms to control agency problems between managers and shareholders. Journal of Financial and Quantitative Analysis, (03), 377–397.

Arthurs, J.D., Hoskisson, R.E., Busenitz, L.W., & Johnson, R.A. (2008). Managerial agents watching other agents: Multiple agency conflicts regarding underpricing in IPO firms. Academy of Management Journal, 51(2), 277–294.

Baron, D. (1982). A model of the demand for investment banking and distribution services for new issues. Journal of Finance, 37(4), 955–976.

Beatty, R.P., & Ritter, J.R. (1986). Investment banking, reputation, and the underpricing of initial public offerings. Journal of Financial Economics, 15(1), 213–232.

Bell, R. G., Filatotchev, I., & Aguilera, R. V. (2013). Corporate Governance and Investors’ Perceptions of Foreign IPO Value: An Institutional Perspective. Academy of Management Journal, 57(1), 301-320. http://doi.org/10.5465/amj.2011.0146

Berezinets, I.V., Elfimova, M.V., Gennadyevna, Z.I., Ilina, Y.B., Koretskyi, I.V., Ovchinnikova, Y. V., & Sharman, R. (2011). Corporate Governance Practices in Russia. ZAO "KMPG (Vol. 1). Publishing house“Grebennikov”.

Bethel, J.E., & Liebeskind, J. (1993). The effects of ownership structure on corporate restructuring. Strategic Management Journal, 14(S1), 15–31.

Bhattacharya, S. (1979). Imperfect information, dividend policy, and “the bird in the hand” fallacy. Bell Journal of Economics, 10(1), 259–270.

Booth, J.R., & Chua, L. (1996). Ownership dispersion, costly information, and IPO underpricing. Journal of Financial Economics, 41(2), 291–310.

Boulton, T.J., Smart, S.B., & Zutter, C. J. (2010). IPO underpricing corporate and international governance. Journal of International Business Studies, 41(2), 206–222.

Brealey, R., Leland, H.E., & Pyle, D.H. (1977). Informational asymmetries, financial structure, and financial intermediation. The Journal of Finance, 32(2)v, 371–387.

Brennan, M.J., & Franks, J. (1997). Underpricing, ownership and control in initial public offerings of equity securities in the UK. Journal of Financial Economics, 45(3), 391–413.

Burton, B., Helliar, C., & Power, D. (2004). The Role of Corporate Gover¬nance in the IPO Process: a note. Corporate Governance, 12(3), 353-360. http://doi.Org/10.llll/j.1467- 8683.2004.00376.x

Cadbury, A. (1992). The Committee on the Financial Aspects of Corporate Governance and Gee and Co. Ltd. Report, 61.

Carter, С. B., & Lorsch, J. W. (2004). Back to the drawing board. Designing Corporate Boards for a Complex World.

Certo, S.T., Covin, J. G., Daily, C.M., & Dalton, D.R. (2001). Wealth and the effects of founder management among IPO-stage new ventures. Strategic Management Journal, 22(6–7), 641–658.

Clarke, T. (2007). International corporate governance: A comparative approach. Rout-ledge.

Cyr, L.A., Johnson, D.E., & Welbourne, T.M. (2000). Human resources in initial public offering firms: do venture capitalists make a difference? Entrepreneurship: Theory and Practice, 25(1), 77.

Dalton, D.R., Daily, С.M., Certo, S.T., & Roengpitya, R. (2003). Meta-analyses of financial performance and equity: fusion or confusion? Academy of Management Journal, 46(1), 13–26.

Darmadi, S., & Gunawan, R. (2013). Underpricing, board structure, and ownership. Managerial Finance, 39(2), 181-200. http://doi.org/10.1108/03074351311294016

Desender, K. (2009). The relationship between the ownership structure and the role of the board, 1–29.

Dolgopyatova, T.G., Libman, A., Petrov, I. O., & Yakovlev, A. (2012). Strengthening the role of boards of directors in Russian companies: a signal to the markets or the need of a developing business. Materials for National Council on Corporate Government, 1–29.

Drucker, S., & Puri, M. (2005). On the benefits of concurrent lending and underwriting. The Journal of Finance, 60(6), 2763–2799.

Du Plessis, J. J., Hargovan, A., & Bagaric, M. (2010). Principles of contemporary corporate governance. Cambridge University Press.

Espenlaub, S., & Tonks, I. (1998). Post-IPO Directors’ Sales and Reissuing Activity: An Empirical Test of IPO Signalling Models. Journal of Business Finance & Accounting, 25(9–10), 1037–1079.

Fama, E.F., & Jensen, M.C. (1983). Separation of ownership and control. The Journal of Law & Economics, 26(2), 301–325.

Federal Property Government Agency (2013), (843), 3–33.

Field, L.C., & Sheehan, D. (2001). Underpricing in IPOs: Control, monitoring or liquidity.

Filatotchev, I., & Bishop, K. (2002). Board composition, share ownership, and underpricing’ of U.K. IPO firms. Strategic Management Journal, 23(10), 941–955. http://doi.org/10.1002/smj.269

Haid, A., & Yurtoglu, B.B. (2006). Ownership structure and executive compensation in Germany. Available at SSRN 948926.

Hambrick, D.C., & Jackson, E.M. (2000). Outside directors with a stake: The linchpin in improving governance. California Management Review, 42(4), 108–127.

Hanley, K.W. (1993). The underpricing of initial public offerings and the partial adjustment phenomenon. Journal of Financial Economics, 34(2), 231–250.

Hanley, K.W., & Hoberg, G. (2009). Are Strategic Disclosure and Underpricing Decisions Influenced by Liability Risk? In Working Paper, University of Maryland.

Hare, Paul, Muravyev, A. (2002). Privatization in Russia. Russian-European Centre for Economic Policy RESEARCH PAPER SERIES, (August).

Howton, S.D., Howton, S.W., & Olson, G.T. (2001). Board ownership and IPO returns. Journal of Economics and Finance, 25(1), 100–114.

Ilchuk, K. (2006). About the influence of the boards of directors structure of Russian companies on its efficiency. Obshchestvo i ekonomika, (9), 132–148.

Iwasaki, I. (2008). The determinants of board composition in a transforming economy: Evidence from Russia. Journal of Corporate Finance, 14(5), 532–549.

Jensen, M.C. (1986). Agency cost of free cashflow, corporate finance, and takeovers. Corporate Finance, and Takeovers. American Economic Review, 76(2).

Jensen, M.C., & Meckling, W.H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.

Jones, I., & Pollitt, M. (2004). Understanding how issues in corporate governance develop: Cadbury Report to Higgs Review. Corporate Governance: An International Review, 12(2), 162–171.

Journal of the Bank of Russia. (2014). Russian Code of Corporate Governance, 40(1518).

Kang, S.K., Kang, H.C., Kim, J., & Kim, N. (2015). Insiders’ Pre-IPO Ownership, Underpricing, and Share-Selling Behavior: Evidence from Korean IPOs. Emerging Markets Finance and Trade, 51(sup3), 66-84. http://doi.org/10.1080/1540496X.2015.1039902

Keasey, K., Thompson, S., & Wright, M. (2005). Corporate governance: accountability, enterprise and international comparisons. John Wiley & Sons.

Kim, M., & Ritter, J.R. (1999). Valuing IPOs. Journal of Financial Economics, 53(3), 409–437.

Kpmg. (2013). The world of Corporate Governance: Characteristical environment Board of Directors in the Russian Federation.

Latham, & Watkins. (2011). Client Alert (Vol. 1233).

Lazarides, T., Drimpetas, E., & Dimitrios, K. (2009). Ownership structure in Greece: Impact of corporate governance. IUP Journal of Corporate Governance, 8(3/4), 75.

Ljungqvist, A. (2007). IPO Underpricing: a survey. Handbook of Corporate Finance: Empirical Corporate Finance. North-Holland, 378422(41), 63–99.

Ljungqvist, A., & Wilhelm, W.J. (2005). Does prospect theory explain IPO market behavior? The Journal of Finance, 60(4), 1759–1790.

Loughran, T., & Ritter, J.R. (2002). Why don’t issuers get upset about leaving money on the table in IPOs? Review of Financial Studies, 15(2), 413–444.

Loughran, T., Ritter, J.R., & Rydqvist, K. (2016). Initial public offerings: International Insights. Contemporary Finance Digest, 2(1), 165-196. https://doi.org/10.1016/0927-538X(94)90016-7

Mamonov, M.E., & Solntsev, O.G. (2009). Foreign Banks Expansion to Russian Banking Sector: Interim Summation, Perspective Analysis Effort. Journal of the New Economic Association, (1–2), 175–189.

Maslennikova, M., & Stepanova, A. (2010). The Influence of Ownership Structure over Corporate Performance in Russia and Brazil. Journal of Corporate Finance Research, 3(15), 35–46.

Mauri, A. J., & Michaels, M.P. (1998). Firm and industry effects within strategic management: An empirical examination. Strategic Management Journal, 19(3), 211–219.

McCarthy, D.J., Puffer, S.M., & Shekshniya, S.V. (2004). Corporate governance in Russia. Edward Elgar Publishing.

Mnif, A. (2009). Board of Directors and the Pricing of Initial Public Offerings (IPOs): Does the Existence of a Properly Structured Board Matter? Evidence from France. In: La place de la dimension européenne dans la Comptabilité Contrôle Audit (p. CD- ROM).

MOEX. (2015). MOEX guide: How to become public? Moscow. Retrieved from http://ipoguide.moex.com/index.html

MSCI. (2016). MSCI RUSSIA INDEX (RUB).

Muravyev, A., Berezinets, I., & Ilina, Y. (2014). The structure of corporate boards and private benefits of control: Evidence from the Russian stock exchange. International Review of Financial Analysis, 34, 247-261. http://doi.Org/10.1016/j.irfa.2014.03.008

OECD. (2006). OECD principles of corporate governance. Corporate Governance in Japan: From the Viewpoints of Management, Accounting, and the Market, 109–117. http://doi.org/10.1007/978-4-431-30920-8_10

Pagano, M., Panetta, F., & Zingales, L. (1998). Why do companies go public? An empirical analysis. The Journal of Finance, 53(1), 27–64.

Pan, С. H., Cai, Y., & Li, H. (2012). Executive and director networks and IPO underpricing. Available at SSRN 2024660.

Pearce, J. A., & Zahra, S. A. (1991). The relative power of CEOs and boards of directors: Associations with corporate performance. Strategic Management Journal, 12(2), 135–153.

Penman, S.H., Richardson, S.A., & Tuna, I. (2007). The Book-to-Price Effect in Stock Returns: Accounting for Leverage. Journal of Accounting Research, 45(2), 427–467.

Prasad, D., Vozikis, G.S., Bruton, G.D., & Merikas, A. (1995). “ Harvesting” through initial public offerings (IPOs): the implications of underpricing for the small firm. Entrepreneurship: Theory and Practice, 20(2), 31–42.

Provan, K.G. (1980). Board power and organizational effectiveness among human service agencies. Academy of Management Journal, 23(2), 221–236.

Pukthuanthong-Le, K., & Varaiya, N. (2007). IPO Pricing, Block Sales, and Long-Term Performance. Financial Review, 42(3), 319–348.

PWC. (2012). Considering an IPO? PWC deals practices.

PWC. (2015a). PwC’s 2015 Annual Corporate Directors Survey. Retrieved from http://books, google. ch/books/about/Governing_for_the_Long_Term.html?id=gtOi OOBEAaQC &redir_esc=y

PWC. (2015b). Survey of Board of Directors of Russian Companies.

Ritter, J.R. (1987). The costs of going public. Journal of Financial Economics, 19(2), 269-281. http://doi.org/10.1016/0304-405X(87)90005-5

Ritter, J.R. (2011). Equilibrium in the IPO Market. Available at SSRN 1822542.

Ritter, J.R., & Welch, I. (2002). A Review of IPO Activity, Pricing, and Allocations. Journal of Finance, 57(44), 1795-1828. http://doi.org/10.2307/3094524

Rock, K. (1986). Why new issues are underpriced. Journal of Financial Economics, 15(1–2), 187–212. http://doi.org/10.1016/0304-405X(86)90054-l

Rosenstein, S., & Wyatt, J.G. (1990). Outside directors, board independence, and share-holder wealth. Journal of Financial Economics, 26(2), 175–191.

Russian Association of Independent Directors Research. (2015).

Smart, S.B., & Zutter, C.J. (2003). Control as a motivation for underpricing: A comparison of dual and single-class IPOs. Journal of Financial Economics, 69(1), 85–110.

http://doi.org/10.1016/S0304-405X(03)00109-0

Solomon, J. (2007). Corporate governance and accountability. John Wiley & Sons.

Stoughton, N.M., & Zechner, J. (1998). IPO-mechanisms, monitoring and ownership struc¬ture. Journal of Financial Economics, 49(1), 45–77.

Suherman, Rahmawati, W., & Buchdadi, A.D. (2011). Firm Performance, Corporate Governance, and Executive Compensation in Financial Firms: Evidence from Indonesia, (1), 1–10. Retrieved from http://ssrn.com/abstract=1805532

Titman, S., & Trueman, B. (1986). Information quality and the valuation of new issues. Journal of Accounting and Economics, 8(2), 159–172.

Tyson, L.D. (2003). The Tyson Report on the Recruitment and Development of Non-executive Directors: A Report Commissioned by the Department of Trade & Industry Following the

Publication of the Higgs Review of the Role and Effectiveness of Non-executive Directors in January 2. London Business School.

Willekens, M., & Sercu, P. (2005). Corporate governance at the crossroads. Intersentia nv.

Downloads

Published

2022-02-17

How to Cite

Levitanus, V. (2022). The Relationship Between the Board Composition and the Level of IPO Underpricing in Russian Companies. Contributions to Game Theory and Management, 12. Retrieved from https://gametheory.spbu.ru/article/view/12921

Issue

Section

Articles