Influencing Initial Public Offering Investors with Prestige: Signaling with Board Structures

Abstract

I describe how board structures influence the decision-making processes that investors use when purchasing shares of firms undertaking initial public offerings (IPOs). IPO firms are relatively unknown to investors and suffer from a liability of market newness. I rely on signaling theory, institutional theory, and sociological research on prestige to suggest that investor perceptions of board prestige signal organizational legitimacy, thereby reducing the liability of market newness and improving IPO firm stock performance. I also propose that the characteristics of investors, namely prestige, influence their perceptions of board prestige.