Role of corporate governance in IPO performance

Abstract

This study explores how board characteristics and share ownership influence the long term performance of IPOs in India, using market-adjusted abnormal returns (BHAR) as the measure. It examines factors like board size, independence, leadership, promoter ownership, strategic investors, and institutional investors, along with control variables such as issue size, leverage, and firm size. The findings reveal significant under performance in the first two years after listing, with board size, the promoter CEO's role, and strategic investor ownership having a notable impact on long-term returns. These results highlight the importance of corporate governance for firms, investors, and regulators. Corporate governance pertains to the framework outlining the roles and obligations of different stakeholders within a company, which includes boards, executives, shareholders, and other relevant parties. It encompasses a spectrum of processes, traditions, regulations, policies, and institutions dictating the direction, management, and oversight of a corporation. At its core, corporate governance emphasizes principles of responsibility and fiduciary duty, aiming to promote ethical behavior and protect the interests of shareholders. Effective corporate governance practices are vital for cultivating investor trust, encouraging competitiveness, and fostering economic advancement. Boards of directors typically assume a pivotal role in corporate governance, overseeing strategic planning, policy development, executive selections, and ensuring organizational transparency. Ultimately, good corporate governance entails transparent, efficient, and equitable decision-making systems anchored in strong management-staff relationships, robust human resource practices, and clear legal frameworks. Profitability in banking reflects a bank's ability to utilize its resources effectively to maximize net profits, serving as a gauge of asset deployment efficiency and managerial prowess. Their findings provide valuable insights into the different facets of corporate governance and its impact on performance within the private banking sector in Nepal. Keywords: Corporate governance, performance, return on equity, return on assets, size bank, interest rate spread, credit deposit ratio, non performing loan