Signaling revisited: The use of signals in the market for IPOs

Research summary: Scholars have actively researched the initial public offering (IPO) underpricing phenomenon as it relates to the issuing firm's resource acquisition and entrepreneur's wealth retention. In this study, we attempt to replicate three studies that examine how top management and board-level characteristics impact IPO underpricing using signaling theory. Focusing on a different time period and using a new sample of 234 U.S. IPO firms, we do not find evidence for the signaling effects of top management, governance structure, and social ties on resource acquisition and wealth retention during the IPO process. We propose possible theoretical and empirical reasons for our results and discuss two major external changes that researchers should account in future research. Managerial summary: Past studies on initial public offering (IPO) underpricing have systematically documented the effectiveness of signals (i.e., having seasoned CEO and top management team, director independence, and director network) that influence the amount of money entrepreneurs “leave on the table” during the IPO process. Since these studies were conducted before the ongoing information revolution, we re-examined the effectiveness of these signals in the current IPO market. Despite using similar methodological approaches that past studies used, we do not find evidence supporting the prior findings. To explain our findings, we discuss two notable recent changes—unprecedented access to information and a regulatory change—that future researchers should examine in the context of IPO underpricing research. Copyright � 2016 John Wiley & Sons, Ltd.