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The contrasting effects of board composition and structure on IPO firm underpricing in a developing context

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  • Hearn, Bruce

Abstract

This study investigates the impact of board governance features and the presence of foreign, indigenous high society executives and board diversity on levels of IPO underpricing in a unique sample of 62 Initial Primary Offerings (IPOs) from across Sub Saharan African (SSA), excluding South Africa. I find evidence that greater numbers of foreign executives increase underpricing while higher numbers of indigenous high society directors have an opposing effect. Increasing board ethnic and nationality diversity together with the establishment of nominally independent board monitoring and oversight committees are associated with higher underpricing implying that standard international governance best practice is inappropriate in a developing region dominated by narrow political economies underscored by underdeveloped formal institutions with minimal investor protection.

Suggested Citation

  • Hearn, Bruce, 2012. "The contrasting effects of board composition and structure on IPO firm underpricing in a developing context," International Review of Financial Analysis, Elsevier, vol. 21(C), pages 33-44.
  • Handle: RePEc:eee:finana:v:21:y:2012:i:c:p:33-44 DOI: 10.1016/j.irfa.2011.09.004
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    References listed on IDEAS

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    Cited by:

    1. He, Lerong & Wan, Hong & Zhou, Xin, 2014. "How are political connections valued in China? Evidence from market reaction to CEO succession," International Review of Financial Analysis, Elsevier, pages 141-152.

    More about this item

    Keywords

    Corporate governance; IPO; Underpricing; Agency theory; Africa;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • N27 - Economic History - - Financial Markets and Institutions - - - Africa; Oceania

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