Signalling IPO quality through female directors

Signalling IPO quality through female directors PurposeThe purpose of this paper is to investigate whether or not the presence of female directors at the time of an initial public offering (IPO) can be considered as a signal of IPO quality.Design/methodology/approachA sample of 220 Malaysian IPOs over the period of 2005–2015 was used. This study employed the mean regression technique (ordinary least squares and White’s heteroskedasticity-consistent standard errors) and the median regression technique (quantile regression) to examine the signalling power of female directors on the board at the time of an IPO.FindingsThe results show that the presence and proportion of female directors at the time of the IPO have negative effects on IPO initial returns (IR). The negative effects occur at both the conditional mean and the dispersion of IPO IR. These results are robust to endogeneity bias.Practical implicationsThe findings of this study suggest that female directors on the board at the time of an IPO can be considered as a desirable signal of IPO quality. As a result, IPO issuers can consider signalling the quality of their IPOs by having female directors on their boards. Likewise, market participants can use female directors as an instrument to value an IPO.Originality/valueStudies on the impact of female directors on the board have largely been centred on established companies. Thus, this study contributes to the literature by examining the signalling role of women at the time of an IPO, which is considered as a significant milestone in the lifecycle of a company. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png International Journal of Managerial Finance Emerald Publishing

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1743-9132
DOI
10.1108/IJMF-01-2018-0025
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to investigate whether or not the presence of female directors at the time of an initial public offering (IPO) can be considered as a signal of IPO quality.Design/methodology/approachA sample of 220 Malaysian IPOs over the period of 2005–2015 was used. This study employed the mean regression technique (ordinary least squares and White’s heteroskedasticity-consistent standard errors) and the median regression technique (quantile regression) to examine the signalling power of female directors on the board at the time of an IPO.FindingsThe results show that the presence and proportion of female directors at the time of the IPO have negative effects on IPO initial returns (IR). The negative effects occur at both the conditional mean and the dispersion of IPO IR. These results are robust to endogeneity bias.Practical implicationsThe findings of this study suggest that female directors on the board at the time of an IPO can be considered as a desirable signal of IPO quality. As a result, IPO issuers can consider signalling the quality of their IPOs by having female directors on their boards. Likewise, market participants can use female directors as an instrument to value an IPO.Originality/valueStudies on the impact of female directors on the board have largely been centred on established companies. Thus, this study contributes to the literature by examining the signalling role of women at the time of an IPO, which is considered as a significant milestone in the lifecycle of a company.

Journal

International Journal of Managerial FinanceEmerald Publishing

Published: Apr 17, 2019

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