The Role of top Management Teams Heterogeneity in the IPO Process

The purpose of this paper is to investigate the influence of top management teams (TMT) characteristics on the firm performance in the initial public offering (IPO) process. Many scholars have investigated the general relationship between firm performance and top management teams but only few of them have tried to examine the link between these factors in the IPO context. However, an IPO process poses a critical moment in the company development as the company enters public market. Relying on signaling theory, we examine the relationship between various TMT heterogeneities and IPO underpricing. The signaling theory suggests that the issuing firm is better informed on its future development and strategy than the potential investors. The aim of firm undertaking an IPO is to convince the investors through signals about its value. Within the signaling theory the quality and composition of top management team may represent such a signal for the potential investors. The data sample consists of the 37 realized initial public offerings in the following European countries - Switzerland, Germany, the Czech Republic, Estonia, and Bulgaria for the period 2008-2012. Correlation and multivariate regressions analyses were employed to test the sample on four hypotheses. Findings suggest that heterogeneity in the TMT nationality is negatively associated with IPO underpricing and thus improves firm performance in IPO process. Remaining heterogeneities in age, gender, and tenure of TMT members were found to not be significant for investors, and these results are consistent with prior research. The paper extends existing empirical research based on signaling theory in the context of IPO by focusing on the issues of top management teams which unveil the research gap in the area of IPOs and TMTs for further investigation.