Resource and Strategy Roles of Corporate Governance and Stockmarket Response: An Investigation of Initial Public Offerings in the UK, 1999-2000

Combining an agency perspective, a resource-based view and upper echelon research, this paper examines inter-links between executive characteristics, board structure and share ownership, and short-term performance of firms in a sample of initial public offerings (IPOs) in the UK. It argues that the IPO process presents a unique combination of agency relationships between the firm's executive and non-executive directors, IPO's advisors and underwriters, and outside investors. Board structure, diversity and ownership may be used strategically by the IPO's team to reduce potential agency costs. It shows that, in line with the predictions of a proposed theoretical model, board diversity and share ownership of non-executive directors are negatively associated with experience and share ownership of executive directors. Board diversity and executive share ownership are associated with better IPO performance measured in terms of share offer 'underpricing'.