Does Board Structure Impact IPO Underpricing? - Evidence from Sweden

Abstract: This paper applies a mixed research method and signaling theory to study the effect of certain board characteristics on IPO underpricing in Sweden. By examining 316 IPOs and 1,678 board members between 2014 and 2018 through various regressions, the analysis demonstrates that board size, board diversity, and education as a proxy for competence, are not correlated with underpricing. Contrary to expectations, board independence is significantly and positively correlated with underpricing. The quantitative results are complemented with a qualitative study, by conducting 14 interviews with board members and investors. These lead to two distinct theoretical models which further illuminate the quantitative findings. First, the authors theorize that the lack of correlation between underpricing and three of the board characteristics indicate that Swedish investors view boards as a hygiene factor. Second, interviews with board members suggest that firms do not try to avoid underpricing, but rather actively discount their IPOs.