Information asymmetry and investor valuation of IPOs: top management team legitimacy as a capital market signal

Boyd D. Cohen

560 citations0/0 files storedStrategic Management Journal

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Corporate Finance and Governance Entrepreneurship Studies and Influences Private Equity and Venture Capital

Abstract

Abstract The condition of information asymmetry between current owners and potential IPO investors creates a context wherein the legitimacy of the top management team (TMT) may serve as a valid signal of value to potential investors. The results confirm our hypotheses that TMT legitimacy is negatively correlated with post‐IPO stock value run‐up. Our results support a previously unexplored view of the TMT as an important signal of value in IPOs, and suggest that dual benefits accrue to the TMT selection process in IPO firms. Copyright © 2005 John Wiley & Sons, Ltd.

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References

1995Managing Legitimacy: Strategic and Institutional Approaches 1984Upper Echelons: The Organization as a Reflection of Its Top Managers 1984Upper Echelons: The Organization as a Reflection of Its Top Managers 1977The Determination of Financial Structure: The Incentive-Signalling Approach 1977INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION 1977Informational Asymmetries, Financial Structure, and Financial Intermediation 1989Top management and innovations in banking: Does the composition of the top team make a difference?1999Interorganizational Endorsements and the Performance of Entrepreneurial Ventures

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