Signaling Firm Value through Board Structure: An Investigation of Initial Public Offerings

Abstract

The relationship between boards of directors and firm performance, whether in the entrepreneurial context or otherwise, has long intrigued scholars. To date, no systematic relationship has been established, leading researchers to explore specialized contexts where such relationships may emerge. We believe the initial public offering (IPO) process provides a promising context. Relying on signaling theory, we investigate the relationship between board structure and IPO underpricing, a performance indicator unique to the IPO context, among a sample of IPOs during the 1990s. Consistent with signaling theory, board size and board reputation are negatively associated with IPO underpricing, but board composition and board leadership structure are not negatively associated with IPO underpricing.