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Chief executive officer power and initial public offering underpricing: Examining the influence of demand-side cultural power distance

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Chief executive officer power and initial public offering underpricing : Examining the influence of demand-side cultural power distance. / Krause, Ryan; Chen, Juanyi; Bruton, Garry D.; Filatotchev, Igor.

In: Global Strategy Journal, Vol. 11, No. 4, 11.2021, p. 686-708.

Research output: Contribution to journalArticlepeer-review

Harvard

Krause, R, Chen, J, Bruton, GD & Filatotchev, I 2021, 'Chief executive officer power and initial public offering underpricing: Examining the influence of demand-side cultural power distance', Global Strategy Journal, vol. 11, no. 4, pp. 686-708. https://doi.org/10.1002/gsj.1422, https://doi.org/10.1002/gsj.1422

APA

Krause, R., Chen, J., Bruton, G. D., & Filatotchev, I. (2021). Chief executive officer power and initial public offering underpricing: Examining the influence of demand-side cultural power distance. Global Strategy Journal, 11(4), 686-708. https://doi.org/10.1002/gsj.1422, https://doi.org/10.1002/gsj.1422

Vancouver

Krause R, Chen J, Bruton GD, Filatotchev I. Chief executive officer power and initial public offering underpricing: Examining the influence of demand-side cultural power distance. Global Strategy Journal. 2021 Nov;11(4):686-708. https://doi.org/10.1002/gsj.1422, https://doi.org/10.1002/gsj.1422

Author

Krause, Ryan ; Chen, Juanyi ; Bruton, Garry D. ; Filatotchev, Igor. / Chief executive officer power and initial public offering underpricing : Examining the influence of demand-side cultural power distance. In: Global Strategy Journal. 2021 ; Vol. 11, No. 4. pp. 686-708.

Bibtex Download

@article{25a531d917e24b05912153a636802a3b,
title = "Chief executive officer power and initial public offering underpricing: Examining the influence of demand-side cultural power distance",
abstract = "Research Summary: Initial public offering (IPO) underpricing reflects the inability of early investors to capture the full value of an entrepreneurial firm. IPO firms can potentially limit underpricing by signaling wealth protection through lower chief executive officer (CEO) power. Such signaling is particularly challenging for many IPO firms, though, because for those doing business in high-power-distance cultures, CEO power can also signal wealth creation, making CEO power a mixed signal for IPO investors. Drawing on signaling theory, we argue that CEO power is positively associated with IPO underpricing, but this relationship weakens for IPO firms doing business in countries with high cultural power distance because the information signaled becomes less clear. The signaling impact of both CEO power and demand-side cultural power distance weakens, however, when underwriter reputation offers a substitute signal. Managerial Summary: This research offers new knowledge for IPO corporate governance practitioners, such as entrepreneurs, venture capitalists, underwriters, and regulators. Specifically, our research demonstrates that the power dynamic in the upper echelons has implications for demand-side legitimacy or making U.S.-listed firms more legitimate with international customers. As a result, stockholders and securities analysts who balk at the consolidation of CEO power should consider the potential benefits that such consolidation of power might grant the firm when competing in different cultural environments associated with foreign markets.",
keywords = "CEO power, informal institutions, IPO, signaling, underpricing",
author = "Ryan Krause and Juanyi Chen and Bruton, {Garry D.} and Igor Filatotchev",
note = "Funding Information: National Natural Science Foundation of China, Grant/Award Number: 71810107002 Funding information Funding Information: We would like to thank Dan Li (Editor) and the two anonymous reviewers for their helpful comments and suggestions. The second author acknowledges the support of the National Natural Science Foundation of China (grant number 71810107002). Publisher Copyright: {\textcopyright} 2021 Strategic Management Society.",
year = "2021",
month = nov,
doi = "http://doi.org/10.1002/gsj.1422",
language = "English",
volume = "11",
pages = "686--708",
journal = "Global Strategy Journal",
issn = "2042-5805",
publisher = "John Wiley & Sons Inc.",
number = "4",

}

RIS (suitable for import to EndNote) Download

TY - JOUR

T1 - Chief executive officer power and initial public offering underpricing

T2 - Examining the influence of demand-side cultural power distance

AU - Krause, Ryan

AU - Chen, Juanyi

AU - Bruton, Garry D.

AU - Filatotchev, Igor

N1 - Funding Information: National Natural Science Foundation of China, Grant/Award Number: 71810107002 Funding information Funding Information: We would like to thank Dan Li (Editor) and the two anonymous reviewers for their helpful comments and suggestions. The second author acknowledges the support of the National Natural Science Foundation of China (grant number 71810107002). Publisher Copyright: © 2021 Strategic Management Society.

PY - 2021/11

Y1 - 2021/11

N2 - Research Summary: Initial public offering (IPO) underpricing reflects the inability of early investors to capture the full value of an entrepreneurial firm. IPO firms can potentially limit underpricing by signaling wealth protection through lower chief executive officer (CEO) power. Such signaling is particularly challenging for many IPO firms, though, because for those doing business in high-power-distance cultures, CEO power can also signal wealth creation, making CEO power a mixed signal for IPO investors. Drawing on signaling theory, we argue that CEO power is positively associated with IPO underpricing, but this relationship weakens for IPO firms doing business in countries with high cultural power distance because the information signaled becomes less clear. The signaling impact of both CEO power and demand-side cultural power distance weakens, however, when underwriter reputation offers a substitute signal. Managerial Summary: This research offers new knowledge for IPO corporate governance practitioners, such as entrepreneurs, venture capitalists, underwriters, and regulators. Specifically, our research demonstrates that the power dynamic in the upper echelons has implications for demand-side legitimacy or making U.S.-listed firms more legitimate with international customers. As a result, stockholders and securities analysts who balk at the consolidation of CEO power should consider the potential benefits that such consolidation of power might grant the firm when competing in different cultural environments associated with foreign markets.

AB - Research Summary: Initial public offering (IPO) underpricing reflects the inability of early investors to capture the full value of an entrepreneurial firm. IPO firms can potentially limit underpricing by signaling wealth protection through lower chief executive officer (CEO) power. Such signaling is particularly challenging for many IPO firms, though, because for those doing business in high-power-distance cultures, CEO power can also signal wealth creation, making CEO power a mixed signal for IPO investors. Drawing on signaling theory, we argue that CEO power is positively associated with IPO underpricing, but this relationship weakens for IPO firms doing business in countries with high cultural power distance because the information signaled becomes less clear. The signaling impact of both CEO power and demand-side cultural power distance weakens, however, when underwriter reputation offers a substitute signal. Managerial Summary: This research offers new knowledge for IPO corporate governance practitioners, such as entrepreneurs, venture capitalists, underwriters, and regulators. Specifically, our research demonstrates that the power dynamic in the upper echelons has implications for demand-side legitimacy or making U.S.-listed firms more legitimate with international customers. As a result, stockholders and securities analysts who balk at the consolidation of CEO power should consider the potential benefits that such consolidation of power might grant the firm when competing in different cultural environments associated with foreign markets.

KW - CEO power

KW - informal institutions

KW - IPO

KW - signaling

KW - underpricing

UR - http://www.scopus.com/inward/record.url?scp=85116801059&partnerID=8YFLogxK

U2 - http://doi.org/10.1002/gsj.1422

DO - http://doi.org/10.1002/gsj.1422

M3 - Article

AN - SCOPUS:85116801059

VL - 11

SP - 686

EP - 708

JO - Global Strategy Journal

JF - Global Strategy Journal

SN - 2042-5805

IS - 4

ER -

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