Women directors and IPO underpricing: evidence from Indian markets

Abstract

Purpose – This paper aims to fill the gap of the relatively under-researched impact of women directors on initial public offering (IPO) underpricing in developing countries. Gender diversity is an important emerging issue within the corporate governance literature. Recently, there has been a growing thrust on gender-diverse boards. However, their proportion on corporate boards is low worldwide. The paper examines the influence of women directors on the underpricing phenomenon pervasive in the IPO context. Design/methodology/approach – Gender diversity is an important emerging issue within the corporate governance literature. Recently, there has been a growing thrust on gender diverse boards. However, their proportion on corporate boards is low worldwide. The impact of women directors on IPO underpricing in developing countries remains relatively under-researched. This paper aims to fill this gap in research. The paper examines the influence of women directors on the underpricing phenomenon pervasive in the IPO context. Findings – The results suggest that the subscription ratio, listing delay and block holder ownership positively influence raw returns and market-adjusted excess returns. The proportion of women directors showed negative non-significant impact on both type of returns. We did not find evidence of the other explanatory variables included in the model. Research limitations/implications – The relatively low proportion of female directors may be the reason for some of the non-significant findings. Future research with a good gender balance on boards is likely to help generalising the findings. Other confounding factors also need to be included in the model for deeper explanations of the phenomenon. Practical implications – The study highlights the existence of a “glass ceiling” in Indian corporate settings, where women have to make a tough fight. This barrier must be removed to unleash the real talent of women as directors and see this talent reflected in returns. Social implications – The paper highlights both the need to better manage the gender balance in corporate board rooms and the need to incorporate women’s talents in corporate and investment decisions. Originality/value – The paper highlights the significant gender gap in IPO directorial positions in developing countries such as India. It explores female directors’ contributions in initial pricing performance, which remain unaddressed in this part of the world. Insights into this sensitive issue in an emerging economy such as India can provide important inputs.

Effect of Composition of Board and Promoter Group Retained Ownership on Underpricing of Indian IPO firms: An Empirical Study

“…Reutzel and Belsito (2015) confirmed the existence of biasness against female directors in the US IPO firms, as investors reacted negatively to their presence, but this biasness seemed to lessen with developments in corporate governance measures. Handa and Singh (2015) in their study on Indian IPO firms which went public upto 2012, while pointing their low proportion at 4.8 per cent, did not find any significant relation between female directors’ presence and underpricing. However, with developments taking place in governance mechanisms in India, this dimension of corporate governance is also moving at a faster pace as contended by Kurup, Chandrashekar, and Muralidharan (2011) that even though women are now more easily occupying positions on upper echelons in business firms, yet their proportion is very miniscule.…”

“…However, in a perfect market setting or in an efficient market, the stock will gain its intrinsic value after the issue date (Walker, 2008) or the offer price will be equal to the close price on the first day of trading (Nafid, 2014). This difference between first day close price and offer price is underpricing, which is a premium (Handa & Singh, 2015) accruing to investors but an indirect cost to the issuing firm (Nafid, 2014). Literature available on underpricing suggests that greater the information asymmetry, more the ‘ex ante uncertainty’ and subsequently higher the underpricing (Beatty & Ritter, 1986).…”

IPO Underpricing and Predictive Power of Board Related Corporate Governance Mechanisms: A Study of Indian IPO Market

“…In a study, [10] [12], board committees and influence of CEO as founder [13] and gender diversity on board [14]. The present study uses gender diversity, board independence and nature of board leadership as corporate governance indicators to study their predictive capacity.…”

“…In the wake of recent changes in Indian Companies Act 2013, [14] examined the impact of gender diversity on IPO underpricing and reported a negative and insignificant impact. Gender diversity was reported as irrelevant to investors' investment decision.…”

The Role of Duality Managerial Ownership and Boards on Ipo Value (An Empirical Evidence of Indonesian Firms)

“…Whereas (Boulton and Campbell, 2016) said that overhang shares or retain ownership of old owners have a positive effect on underpricing, this is then supported by, (Dolvin and Kirby, 2016). Likewise before, Handa and Singh (2015), the term promoter ownership was used as a variable that had a positive effect on the level of underpricing. According to Fan (2007) the old owner of the company (Ownership Retention) has a positive impact on the value of underpricing.…”