Board Structure As A Signaling Proxy Of Ipo Quality: A Study On Bursa Malaysia Second Board Firms
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Date
2008
Authors
Chong, Ching Woon
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Abstract
The IPO underpricing phenomenon has long fascinated academicians in the effort of
finding the rational for the anomaly. Similarly, the relationship of corporate governance with
firm performance is often investigated. Certo, Daily and Dalton (2001) are the first to
combine these two areas of researches by exploring on the board structure as the signaling
proxy for firm quality during initial public offering (IPO). Consistent with the signaling
theory, their results show that board size and board reputation are inversely correlated with
IPO underpricing; but board composition and board leadership structure are not inversely
correlated with IPO underpricing. This study extends their research to Bursa Malaysia Second
Board IPOs in an effort of finding the shown signaling effect. A total of 114 IPQ sample firms
for period of 2001 to 2007 were included in this study. The findings however found no
empirical support that board structure plays a role in signaling firm value thus reduces
underpricing. However, this study found that the level of underpricing for the Second Board
over the 2001-2007 period as measured by market adjusted initial return had reduced
substantially (average 21.37%) as compared to earlier Second Board study (average 101.57%)
of How, Jelic, Saadouni and Verheoeven (2006) for the period of 1989-2000.
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Keywords
The IPO underpricing phenomenon , has long fascinated academicians