IPO underpricing and international corporate governance

The impact of institutions, ownership structure, business angels, venture capital and lead managers on IPO firm underpricing across North Africa

“…It is equally reduced, albeit by a smaller degree, with improvements in government effectiveness, defined as ability of government to formulate and enact policies, political stability and rule of law. This would lend support to the findings of Boulton et al (2010) that IPO underpricing is influenced by elevated private benefits of control which is closely linked to asymmetric information of firms listing. Finally we find evidence that foreign VC managers are more likely to be exclusively associated with foreign lead managers in IPOs while business angels are more likely associated with foreign VC and less likely with their domestic VC counterparts.…”

“…Impact of institutional quality on underpricing Boulton et al (2010) extend the theoretical "reduced monitoring hypothesis" argument originally developed by Brennan and Franks onto a cross-country international setting and in particular to the role of differing institutions worldwide. As such the Boulton study argues that private benefits of control are easier for insiders to conceal while they can also act with relative impunity in environments characterised by weak institutions thus leading to a reduced need for underpricing as a form of compensation to minority outside investors.…”

“…While this result lends further tacit support for the reduction in asymmetric information (owing to higher institutional quality) leading to decreasing motivation for underpricing as a means to compensate minority investors, it is subject to further study through its six disaggregated World Bank Governance component institutional quality measures in the next section 4-3. The large, negative association between underpricing and privatization dummy, which has variable statistical significance across models 1 to 7, reveals a contrasting relationship to that expected from Boulton et al (2010). Consequently in North Africa state divestments through privatization is more likely to leave more funds available to corporate insiders.…”

“…Zutter, 2003 andArthurs et al, 2008) alongside other developed markets such as UK (Brennan and Franks, 1997) and more recently UK and France (Bruton et al, 2010) and Germany (Tykova and Walz, 2007). It is only more recently that a cross country comparative literature has started to emerge seeking to elaborate on the institutional and corporate governance (at legislative level) differences that impact on often considerable variations in IPO underpricing in worldwide equity markets (see Boulton et al, 2010). However a shortfall in this emerging latter cross-country comparative literature is the almost exclusive focus on the impact of high level institutional differences pervasive across countries with the wholesale omission from consideration of important market participants, such as lead managers and private equity entities.…”

The Determinants of IPO Firm Prospectus Length in Africa

“…However the agency theory perspective views this dispersion of ownership away from the concentrated control of the initial entrepreneur-owner as giving rise to potential downside risks and agency costs from a misalignment of interests between incumbent managers and executives (agents) and external minority investors (principals) (Jensen and Meckling, 1976). Adverse selection and moral hazard problems arise from the asymmetric information between new owners (investors) and incumbent managers (agents) as there are incentives for the latter to mislead or even worse expropriate the former (Bruton et al, 2010;Boulton et al, 2009). As such the board of directors itself can be viewed as being a tool which can act to better align incentives of various principals and agents and facilitate communication and information disclosure thereby reducing asymmetric information (Jensen and Meckling, 1976).…”