Journal of Economics and Finance

, Volume 25, Issue 1, pp 100–114 | Cite as

Board ownership and IPO returns

  • Shawn D. Howton
  • Shelly W. Howton
  • Gerard T. Olson


This study examines the role of the board of directors for IPO pricing irregularities. Theory suggests that initial underpricing may be the result of asymmetric information and the long-run underperformance may be the result of managerial mismanagement of new funds due to agency conflicts. A strong board of directors can potentially reduce both asymmetric information and agency problems. We find that the structure of the board is related to IPO pricing anomalies. Initial returns are directly related to share ownership by insiders and the percentage of independent outsiders, and long-run returns are directly related to share ownership by insiders.


Initial Public Offering Share Ownership Shareholder Wealth Board Variable Inside Ownership 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Allen, F., and G. R. Faulhaber. 1989. “Signaling by Underpricing in the IPO Market.”Journal of Financial Economics 23: 303–323.CrossRefGoogle Scholar
  2. Bacon, Curtis J., Marcia M. Cornett, and Wallace N. Davidson. 1997. “The Board of Directors and Dual-Class Recapitalizations.”Financial Management 26: 5–22.CrossRefGoogle Scholar
  3. Baron, David P. 1982. “A Model of the Demand for Investment Banking Advising and Distribution Services for New Issues.”Journal of Finance 37: 955–976.CrossRefGoogle Scholar
  4. Baysinger, Barry D., and Henry N. Butler. 1985. “Corporate Governance and the Board of Directors: Performance Effects of Changes in Board Composition.”Journal of Law, Economics, and Organization (Fall): 101–124.Google Scholar
  5. Beatty, Randolph P., and Jay R. Ritter. 1986. “Investment Banking, Reputation, and the Underpricing of Initial Public Offerings.”Journal of Financial Economics 15: 213–232.CrossRefGoogle Scholar
  6. Brickley, James A., Jeffrey L. Coles, and Gregg Jarrell. 1997. “Leadership Structure: Separating the CEO and Chairman of the Board.”Journal of Corporate Finance 3(3): 189–220.CrossRefGoogle Scholar
  7. Brickley, James A., Jeffrey L. Coles, and Rory L. Terry. 1994. “Outside Directors and the Adoption of Poison Pills.”Journal of Financial Economics 35: 371–390.CrossRefGoogle Scholar
  8. Brickley, James A., and Christopher M. James. 1987. “The Takeover Market, Corporate Board Composition, and Ownership Structure: The Case of Banking.”Journal of Law and Economics 30: 161–181.CrossRefGoogle Scholar
  9. Brickley, James A., Ronald D. Lease, and Clifford W. Smith. 1988. “Ownership Structure and Voting on Antitakeover Amendements.”Journal of Financial Economics 20: 267–291.CrossRefGoogle Scholar
  10. Byrd, John, and Kent Hickman. 1992. “Do Outside Directors Monitor Managers? Evidence from Tender Offers Bids.”Journal of Financial Economics 32: 195–222.CrossRefGoogle Scholar
  11. Carter, Richard B., Frederick H. Dark, and Ajai K. Singh. 1998a. “Underwriter Reputation, Initial Returns, and the Long-Run Performance of IPO Stocks.”Journal of Finance 53: 285–311.CrossRefGoogle Scholar
  12. Carter, Richard B., Frederick H. Dark, and Ajai K. Singh. 1998b. “Board of Directors: Size and Composition and the Effect on IPOs.” Iowa State University working paper.Google Scholar
  13. Carter, Richard B. and Steven Manaster. 1990. “Initial Public Offerings and Underwriter Reputation.”Journal of Finance 45: 1045–1068.CrossRefGoogle Scholar
  14. Chen, Carl R., and Thomas L. Steiner. 1999. “Managerial Ownership and Agency Conflicts: A Nonlinear Simultaneous Equation Analysis of Managerial Ownership, Risk Taking, Debt Policy, and Dividend Policy.”Financial Review 34: 119–136.CrossRefGoogle Scholar
  15. Chemmanur, T. J. 1993. “The Pricing of Initial Public Offerings: A Dynamic Model with Information Production.”Journal of Finance 48: 285–304.CrossRefGoogle Scholar
  16. Dalton, Dan R., Catherine M. Daily, and Jonathan L. Johnson. 1999. “Number of Directors and Financial Performance.”Academy of Management Journal 42: 674–686.CrossRefGoogle Scholar
  17. Grinblatt, M. and C. Y. Wang. 1989. “Signaling and the Pricing of Unseasoned New Issues.”Journal of Finance 44: 393–420.CrossRefGoogle Scholar
  18. Ibbotson, Roger, Jody L. Sindelar, and Jay R. Ritter. 1994. “The Market's Problem with the Pricing of Initial Public Offerings.”Journal of Applied Corporate Finance 7: 66–74.CrossRefGoogle Scholar
  19. Jain, Bharat A., and Omesh Kini. 1994. “The Post-Issue Operating Performance of IPO Firms.”Journal of Finance 49: 1699–1726.CrossRefGoogle Scholar
  20. Jensen, Michael C. 1993. “Presidential Address: The Modern Industrial Revolution, Exit, and the Failure of the Internal Control Systems.”Journal of Finance 48: 831–880.CrossRefGoogle Scholar
  21. Jensen, Michael C., and William H. Meckling. 1976. “Theory of the Firm: Managerial Behavioral, Agency Costs, and Ownership Structure.”Journal of Financial Economics 3: 305–360.CrossRefGoogle Scholar
  22. Lee, Chun I., Stuart Rosenstein, Nanda Rangan, and Wallace N. Davidson, III. 1992. “Board Composition and Shareholder Wealth: The Case of Management Buyouts.”Financial Management 21: 58–71.CrossRefGoogle Scholar
  23. Leland, Hayne E., and David H. Pyle. 1977. “Informational Asymmetries, Financial Structure, and Financial Intermediation.”Journal of Finance 32: 371–387.CrossRefGoogle Scholar
  24. Loughran, Tim. 1993. “NYSE vs. NASDAQ Returns: Market Microstructure or the Poor Performance of Initial Public Offerings.”Journal of Financial Economics 33: 241–260.CrossRefGoogle Scholar
  25. Loughran, Tim, and Jay R. Ritter. 1995. “The New Issues Puzzle.”Journal of Finance 50: 23–51.CrossRefGoogle Scholar
  26. McWilliams, Victoria B., and Nilanjan Sen. 1997. “Board Monitoring and Antitakover Amendments.”Journal of Financial and Quantitative Analysis 32: 491–505.CrossRefGoogle Scholar
  27. Ritter, Jay R.. 1991. “The Long Run Performance of Initial Public Offerings.”Journal of Finance 46: 3–27.CrossRefGoogle Scholar
  28. Ritter, Jay R. 1984. “Signaling and the Valuation of Unseasoned New Issues: A Comment.”Journal of Finance 39: 1231–1237.CrossRefGoogle Scholar
  29. Rock, Kevin. 1986. “Why New Issues Are Underpriced.”Journal of Financial Economics 15: 187–212.CrossRefGoogle Scholar
  30. Rosenstein, Stuart, and Jeffrey G. Wyatt. 1990. “Outside Directors, Board Independence, and Shareholder Wealth.”Journal of Financial Economics 26: 175–191.CrossRefGoogle Scholar
  31. Rosenstein, Stuart, and Jeffrey G. Wyatt. 1997. “Inside Directors, Board Effectiveness, and Shareholder Wealth.”Journal of Financial Economics 44: 205–228.CrossRefGoogle Scholar
  32. Smith, Clifford. 1986. “Investment Banking and the Capital Acquisition Process.”Journal of Financial Economics 15: 3–29.CrossRefGoogle Scholar
  33. Tinic, Seha M. 1988. “Anatomy of Initial Public Offerings of Common Stock.”Journal of Finance 43: 789–822.CrossRefGoogle Scholar
  34. Welch, I. 1989. “Seasoned Offerings, Imitation Costs, and the Underpricing of Initial Public Offerings.”Journal of Finance 44: 421–448.CrossRefGoogle Scholar
  35. Yermack, David. 1996. “Higher Market Valuation of Companies with a Small Board of Directors.”Journal of Financial Economics 40: 185–211.CrossRefGoogle Scholar
  36. Zahra, S. A. and J. A. Pearce. 1989. “Boards of Directors and Corporate Financial Performance: A Review and Integrative Model.”Journal of Management 15: 291–334.CrossRefGoogle Scholar

Copyright information

© Springer 2001

Authors and Affiliations

  • Shawn D. Howton
    • 1
  • Shelly W. Howton
    • 1
  • Gerard T. Olson
    • 1
  1. 1.Department of FinanceVillanova UniversityVillanova

Personalised recommendations