How Corporate Governance Affects the Success of Initial Public Offerings

In our recent paper, Can Governance Help in Making an IPO “Successful”? New Evidence from Europe, we find that corporate governance affects company performance after an IPO in different ways.  We consider an IPO to be successful if it combines positive performance in the short-term, with a value creation effect, and also in the medium-long-term, with a value protection effect (Bertoni et al., 2014).

As to the short-term, we consider the performance of a company at the date of the IPO, as measured by Q-Tobin, which is calculated as the ratio of the market capitalization of the firm to its total assets and price to book ratio (P/BV), which is calculated by dividing the market price by the book value of equity.

As to  the medium-long-term, we consider the performance of a firm’s stock in comparison with its market’s index  12, 24, and 36 months after the IPO. Finally, we use the variable Survival as the time, expressed in years, between the IPO and delisting, or the end of our observation period in 2018, whichever is earlier.

As for the board structure, we use the number of directors who serve on the board and the percentage of directors who are not also executives of the company. We complement the investigation by looking at the board members’ individual characteristics, which are the education credentials of each board member and the average number of other boards on which directors serve.

Our sample is made up of European companies. In this context, we contribute to the recent debate on the possible effects of the application of the Capital Markets Union’s project (CMU). Indeed, the CMU is a key pillar of the EU Commission’s Investment Plan for Europe and plays an important role in the completion of the European Economic and Monetary Union (Brogi & Lagasio, 2019). It aims, inter alia, to reduce the cost of raising capital, especially for small and medium enterprises (SMEs), so as to curb the very high dependence on bank funding of European firms and increase the attractiveness of Europe as a place to invest. One of the fundamental interventions proposed within the CMU framework is to increase the number of listed firms in Europe. Our paper provides a timely investigation of the main corporate governance characteristics that may positively affect the access of SMEs to capital markets. Furthermore, as Hopt (2015) claims, a comprehensive view, encompassing corporate law and corporate governance, is necessary to understanding the effects of the CMU on the European economy.

The initial dataset included about 7,516 observations of IPOs that occurred in Europe during the period 1999 to 2016 from Zephyr – Bureau van Dijk, which we complemented with data about the stock and index performance obtained from Thomson Reuters and Bloomberg. We retrieved data on the financial performance of sample companies from Amadeus and WorldScope. We also obtained information on firms’ corporate governance from BoardEx. The dataset resulting from that collection represents, in our opinion, an opportunity to scrutinize how the corporate governance of a company affects its performance during the IPO process. Our final sample is of 1,270 public offerings over the period 2000-2015.

First, we confirm the key role that corporate governance plays in the valuation of firms, especially when a particular transaction like an IPO occurs. We focus on the already investigated issues of board size and board independence as well as shed light on other relevant characteristics (e.g. the qualification of board members and the number of other boards on which they served, which we interpret  as a measure of the strength of the networks they can tap to benefit the company).  We look at how those factors can affect the likelihood of a “successful” IPO.

We find that larger boards and a large number of independent directors help make IPOs successful in the short-term, but also that the characteristics of boards should change over time in order to maintain companies’ stock performance. Our results suggest that the ideal board in the short term is dynamic, when the main objective is to create. That is not necessarily true in the medium-long term, when the main objective is to protect value. Family businesses, for example, are more resilient in ensuring the protection of value created once the listing process is well developed (e.g. in the medium-long term period) (Minichilli et al., 2016). Furthermore, the experience of the directors (in terms of education and practice) is vital in improving the performance of the IPO.

The size of a company and the characteristics of its board play different roles, depending on the  time period. In particular, we find that smaller firms perform better in the short term and worse over the longer term. By contrast,, the performance of larger firms is more stable because of their ability to attract large investors in the long term. The CMU project should consider this issue as relevant to creating opportunities for SMEs to access capital markets and determining the conditions necessary to avoid delisting. The evidence confirms that good governance can help a firm perform successfully in the long term and that  well-functioning boards are key to attracting investment.

Our findings suggest that firms should periodically re-assess the size of their boards and the characteristics of their directors and carefully design the size and composition when considering an IPO. Finally, corporate governance guidelines and best practices principles should be included with existing listing rules.


Bertoni, F., Meoli, M., & Vismara, S. (2014). Board Independence, Ownership Structure and the Valuation of IPOs in Continental Europe. Corporate Governance: An International Review, 22(2), 116-131.

Brogi, M., Lagasio, V., & Pesic, V. (2020). Can governance help in making an IPO “successful”? New evidence from Europe. Journal of International Financial Management & Accounting, 31(3), 239-269.

Brogi, M. & Lagasio, V. (2019), Equity Markets, in Haliassos, M., Allen, F., Langenbucher, K., and Faia, F., European Capital Markets Union, The MIT Press, Cambridge, MA.

Hopt, K. J. (2015). Corporate Governance in Europe: A Critical Review of the European Commission’s Initiatives on Corporate Law and Corporate Governance. NYUJL & Bus., 12, 139.

Minichilli, A., Brogi, M., & Calabrò, A. (2016). Weathering the storm: Family ownership, governance, and performance through the financial and economic crisis. Corporate Governance: An International Review, 24(6), 552-568.

This post comes to us from Marina Brogi, a professor of international banking and capital markets at Sapienza University of Rome; Valentina Lagasio, a research fellow in financial intermediaries at Sapienza University of Rome; and Valerio Pesic, an associate professor of corporate and investment banking at Sapienza University of Rome. It is based on their recent article, “Can Governance Help in Making an IPO “Successful”? New Evidence from Europe,” available here.

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