The "educational capital" of corporate boards and initial public offering pricing: Evidence from the US initial public offerings

We unravel the conditions under which the type of education found among board members mitigates the uncertainty in new equity markets. Our results indicate that issuers in low R&D industries-as well as those faced with complex organizational structures-leave less money on the table when their boards are dominated by executives with managerial skills. Conversely, boards with highly specialized members in small and knowledge-intensive firms reduce underpricing. Finally, we document that both types of board education lessen initial public offering share-price volatility in the immediate post-issue period. This research is the first to derive conclusive evidence that more executives in the boards with managerial skills and boards with highly specialized members facilitate price discovery in signaling issuer reputation on the first trading day. This study has implications that we provide investors with unique non-financial information, boards' "education capital," that can be considered before making investment decisions.