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Impact of board characteristics on IPO valuation: Evidence from Finland and Sweden
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School of Business |
Master's thesis
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en
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51 + 4
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The purpose of this thesis is to provide insights on how the characteristics of board affect valuation of entities offering an initial public offer. The agency theory portrays that the interests of company management and investors are in conflict by nature. Development of corporate governance has been proposed as a one of the most effective methods to certify the quality of the financial reporting and create trust in the market. As a company implements an effective corporate governance model it can be assumed that the trust towards the quality of financial reporting is improved among the market participants and the required rate of return decreases.
This study examines the impact of board characteristics on the valuation of Initial Public Offerings in Finland and Sweden during 2012-2015. This is especially interesting period as the IPO market has been very active during past years and therefore there is a broad sample of stock listings that will be examined in this study. Further, this study examines differences between the Regulated Market (Nasdaq Exchanges) and the less strict First North market place (Multilateral Trading Facility). This will provide comparison of characteristics of companies listing in the two market places. This comparison has not been studied at large in the academia before, as the Nasdaq Fist North is relatively young market place established in Sweden in 2006 and expanded to Finland the following year.
The study was conducted by performing an OLS regression, correlation analysis and descriptive statistics. The results of the study show that the structure of boards is relatively consistent across the sample and variance among the firm observations is small. However, we can see differences in the board characteristics especially when comparing IPOs between the Main market and First North listings. Firms listed in the main market have larger boards, higher rate of independent board members, and more equal gender representation. Also, we can identify gradual movements in the structures of boards when analysing the trends in time series noting increase in independent members in First North listing while gender representation has increased in Main market listings. Meanwhile, in our regression analysis the only board characteristic that we found to have significant correlation with IPO valuation was board size.