The Impact of Board Characteristics on IPO Underpricing: Evidence from the Central Europe

The aim of this paper is to investigate companies entering the public market and examine whether board structure and diversity have an impact on the success of the Initial Public Offering (IPO). Relying on signaling theory, we investigate the relationship between various types of board characteristics and IPO underpricing of 124 IPOs realized in Central European countries. The signaling theory suggests that the issuing firm is better informed on its future development and strategy than the potential investors. The aim of the firm undertaking an IPO is to convince investors through signals about its value. Within the signaling theory the quality and composition of board members may represent such a signal for potential investors.