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Family involvement signals in initial public offerings

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  • Chandler, Jeffrey A.
  • Payne, G. Tyge
  • Moore, Curt
  • Brigham, Keith H.

Abstract

Utilizing signaling theory, this study examines the relationship between signals of family involvement (i.e., family ownership and management) and the performance of firms undergoing an initial public offering (IPO). Specifically, we argue that firms using family-oriented language in their IPO prospectus results in greater IPO underpricing due to the misalignment between IPO investors’ general perceptions of family business and their expectations for the IPO. Additionally, we argue that this misalignment is more pronounced for firms in high-tech industries, which are commonly more risk- and growth-oriented. Using a sample of 155 U.S.-based firms that made their IPO between 2009 and 2012, we find support for our hypotheses. Overall, our findings demonstrate that more observable signals of family involvement in an IPO may negatively influence IPO performance, particularly in high-tech industries.

Suggested Citation

  • Chandler, Jeffrey A. & Payne, G. Tyge & Moore, Curt & Brigham, Keith H., 2019. "Family involvement signals in initial public offerings," Journal of Family Business Strategy, Elsevier, vol. 10(1), pages 8-16.
    • Handle: RePEc:eee:fambus:v:10:y:2019:i:1:p:8-16
    DOI: 10.1016/j.jfbs.2019.01.004
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    2. Kosmidou, Vasiliki & Holt, Daniel T., 2022. "The relationship between family management and performance: A configurational approach in exploring the role of socioemotional wealth and generational stage," Journal of Family Business Strategy, Elsevier, vol. 13(4).
    3. Binz Astrachan, Claudia & Prügl, Reinhard & Hair, Joseph F. & Babin, Barry J., 2019. "Marketing and branding in family business: Assessing the landscape and charting a path forward," Journal of Family Business Strategy, Elsevier, vol. 10(1), pages 3-7.
    4. Heino, Noora & Tuominen, Pasi & Jussila, Iiro, 2020. "Listed Family Firm Stakeholder Orientations: The Critical Role of Value-creating Family Factors," Journal of Family Business Strategy, Elsevier, vol. 11(4).
    5. Unai Arzubiaga & Alfredo De Massis & Amaia Maseda & Txomin Iturralde, 2023. "The influence of family firm image on access to financial resources in family SMEs: a signaling theory perspective," Review of Managerial Science, Springer, vol. 17(1), pages 233-258, January.
    6. Naciye Sekerci & Jamil Jaballah & Marc van Essen & Nadine Kammerlander, 2022. "Investors’ Reactions to CSR News in Family Versus Nonfamily Firms: A Study on Signal (In)credibility," Entrepreneurship Theory and Practice, , vol. 46(1), pages 82-116, January.
    7. Martin Tao-Schuchardt & Frederik J. Riar & Nadine Kammerlander, 2023. "Family Firm Value in the Acquisition Context: A Signaling Theory Perspective," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1200-1232, July.
    8. Santiago, Andrea & Pandey, Shweta & Manalac, Ma. Theresa, 2019. "Family presence, family firm reputation and perceived financial performance: Empirical evidence from the Philippines," Journal of Family Business Strategy, Elsevier, vol. 10(1), pages 49-56.

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