The Effects of Information Disclosure and Board Independence on IPO Discount*^*

* We are grateful to the participants of the 2005 Academy of Management Conference (Hawaii, USA), Shaker Zahra, Mike Wright, David Citron, the editor, and two anonymous referees for their helpful comments on previous versions of this paper.

Abstract

This paper examines the effect of strategic information disclosure and corporate governance on the stock market performance of initial public offering (IPO) firms in France. It argues that information disclosure and board independence mitigate agency problems between the IPO firm and investors, thus reducing the IPO discount defined as the difference between the offer price and the intrinsic value of the firm. However, extensive disclosure may damage the firm's competitive advantage and lead to a curvilinear (an inverted U‐shape) relationship between information disclosure and the IPO discount. Further analysis suggests that it is not necessarily the quantity of information, but rather the type of information, that causes the IPO discount to increase with the amount of disclosure.

* We are grateful to the participants of the 2005 Academy of Management Conference (Hawaii, USA), Shaker Zahra, Mike Wright, David Citron, the editor, and two anonymous referees for their helpful comments on previous versions of this paper.

* We are grateful to the participants of the 2005 Academy of Management Conference (Hawaii, USA), Shaker Zahra, Mike Wright, David Citron, the editor, and two anonymous referees for their helpful comments on previous versions of this paper.

Notes

* We are grateful to the participants of the 2005 Academy of Management Conference (Hawaii, USA), Shaker Zahra, Mike Wright, David Citron, the editor, and two anonymous referees for their helpful comments on previous versions of this paper.

1 We are grateful to an anonymous reviewer for suggesting these arguments.

2 Due to the presence of some IPO firms with high aftermarket performance, our analysis also indicates a positive buy‐and‐hold abnormal return (BHAR) in France, which is in contrast with prior results in Loughran and Ritter (2000) in the U.S. IPO market. The buy‐and‐hold abnormal return reached its maximum after about 18-months following the IPO date, and then it decreased back to a not significantly different from zero level.

Additional information

Notes on contributors

Salim Chahine

Salim Chahine is associate professor of finance in the Suliman S. Olayan School of Business at the American University of Beirut (AUB) in Lebanon.

Igor Filatotchev

Igor Filatotchev is professor of corporate governance and strategy in the Cass Business School at City University London.