The first objective of this paper is to examine the association between Audit Committee (AC)structural features and the level of underpricing using a sample of 322 Singapore Initial Public Offerings (IPOs) listing on the Stock Exchange of Singapore (SGX) between1997-2004. The second objective is to determine if associations between AC structural features and underpricing changed before, during and after implementation of new corporate governance regulations. Of six AC structural features examined, the authors find only a consistent positive and significant association between underpricing and IPOs with ACs comprising at least one independent director with accounting qualifications and professional credentials. Associations between underpricing and other AC structural features were either insignificant, or only moderately significant in isolated cases. Across the time, the authors find weak empirical support for the view that the association between AC structural features and underpricing intensified as corporate governance regulations related to ACs and their composition strengthened. Overall, they conclude investors place limited if any significance to AC structural features when determining their strike price for an IPO's stock. As AC structural characteristics appear to have little (or nil) effect on lowering an IPO's cost of capital, the findings do not support some policymakers arguments for the introduction of mandated uniform AC structures. Rather, the results support an efficient contracting view that implies firms should have flexibility to determine the AC structure on an individual basis to enable the optimal selection of monitoring mechanisms.
The primary objectives of this study are twofold. First, we seek to analyze the association
between a set of six Audit Committee (AC) structural features and the level of underpricing.
The six AC structural characteristics in question are: (1) independent director representation;
(2) independent director’s accounting qualifications; (3) independent director’s legal
qualifications; (4) presence independent directors concurrently holding senior executive
positions in other publicly listed firms; (5) presence of a firm founder; and (6) substantial
owner (not a company founder) presence. The second major objective is to determine
if associations between the six AC structural features and underpricing shifted during a major
transitional period in Singapore’s corporate governance environment that had overtures for
ACs. This analysis is based on a sample of 322 Singapore Initial Public Offerings (IPOs)between January 1, 1997 and December 31, 2004. Major reforms to Singapore’s corporate
governance landscape—with implications for the structure of ACs—were announced in
March 2001 with effect from January 1, 2003. |
