Impact of Internal Governance Mechanisms on the Initial Returns during the Listing Period

Abstract

The application of simultaneous equation regressions on a sample of 110 French IPO firms between 2005-2010, allowed us to say that the initial return is significantly influenced by the under / overpricing. The results of our study show that the underpricing can improve the initial return. On the other hand, this return is affected negatively and significatively by the overpricing. Thus, we have shown that the governance structure is a major determinant of initial returns, observed in the listing period. Our work shows that there is a very significant relation between the overpricing and the internal governance mechanisms. Nevertheless, the impact of these mechanisms on the underpricing is poorly recorded.