Board Independence, Ownership Structure and the Valuation of IPOs in Continental Europe

Abstract

Manuscript Type Empirical Research Question/Issue We combine the value‐creation and value‐protection views of the board of directors to study the impact of board independence (BI) on the value of the firm at the time of its initial public offering (IPO). Research Findings/Insights We conduct our analysis on a sample of 969 firms that went public in France, Germany, and Italy between 1995 and 2011. We show that BI is a critical factor in the valuation of IPO firms. Our results support both the value‐creation and value‐protection roles of the board of directors. The relative importance of the two roles of the board varies over time, with value‐creation (value‐protection) dominating in IPOs of young (mature) companies. Theoretical/Academic Implications Our theoretical framework combines the agency and resource‐dependence theories. The impact of BI on IPO valuation depends on the importance of the value‐creation and value‐protection roles played by the board. The change in the relative importance of the two roles determines a U‐shaped relationship between BI and firm age. Corporate governance is particularly important for young and innovative firms (where the resource‐dependence theory applies, and governance acts as a value‐creation device), as well as for mature firms and for companies where ownership and control are separated (where the agency theory applies, and governance serves as a value‐protection mechanism for minority shareholders). Practitioner/Policy Implications We show that corporate governance is a significant factor affecting the valuation of an IPO company. The importance of BI varies substantially with the knowledge intensity of the industry, the separation between ownership and control, and the age of the listing company.

Firms’ Board Independence and Corporate Social Performance: A Meta-Analysis

“…The presence of independent directors on companies' boards has its origins in the Anglo-Saxon economic systems [47], mainly driven by the absence of large shareholders who can directly control decisions about the firm's strategic management. Agency theory addresses the advantages of having independent directors on companies' boards [41,51], because they have the ability to mitigate the conflicts between shareholders and managers, providing a valuable protection mechanism [52]. The independence of firms' boards has become a key element of CG that goes beyond the function of organizational control, and allows companies to gain legitimacy and advice and connection with other organizations [53].…”

Students climbing the entrepreneurial ladder: Does university internationalization pay off?

“…For the choice of instrumental variables, we follow the argument that mimicking is a common behavior to achieve social legitimacy (Deephouse and Carter 2005), and this might be true for universities implementing an internationalization strategy. This is why we instrument our potentially endogenous variables (internationalization in teaching, research and third mission) using mimicking behavior (as in Bertoni et al 2014), which is defined as the average level of internationalization (in teaching, research and third mission, respectively) by other universities in the same country, in the same disciplinary field, belonging to our sample.…”

Global Perspectives on Entrepreneurship: Public and Corporate Governance

“…While Farag et al () focus on new listings in the UK, new listings among smaller publicly traded companies in continental Europe are studied in Bertoni, Meoli, and Vismara's () paper on “Board Independence, Ownership Structure, and the Valuation of IPOs in Continental Europe.” Bertoni et al make use of agency and resource dependence theories to study the impact of corporate governance on the value of the firm at the time of its initial public offering (IPO). Based on a sample of 1,440 firms that went public in Europe in the period 1995–2011, they find evidence consistent with the view that corporate governance is a critical factor in the valuation of IPO firms.…”

“…Corporate governance is likewise important for mature companies, but for a different reason, as it enables a value‐protection mechanism for minority shareholders. Bertoni et al () study a number of moderating factors between corporate governance and performance, including, but not limited to, the ownership structure of the company and the extent of the separation between ownership and control.…”