Is board gender diversity considered a signal of IPO quality? Evidence from Indonesia
Authors: Harjayanti Diana Riyana , Suherman Suherman , Ahmad Gatot Nazir 
Published: November 2024

Purpose
This study investigated the impact of board gender diversity on initial public offering (IPO) underpricing in Indonesia. Additionally, the moderating role of Chief Executive Officer (CEO) ownership on the relationship between female executives and IPO underpricing was examined.

Design/methodology/approach
A sample of 384 IPO firms listed on the Indonesian stock exchange from 2010 to 2022 was used. Board gender diversity was measured using three approaches: the presence of female executives, percentage of female executives and number of female executives on the management board. CEO ownership was a dummy variable measured as 1 if the CEO owned shares of the company and 0 otherwise. IPO underpricing was measured as the ratio of the difference between the closing price and offer price to the offer price. This study used moderated multiple linear regression analysis.

Findings
The presence and number of female executives on the board of management were significantly and negatively associated with IPO underpricing. The moderating effect of CEO ownership on the relationship between IPO underpricing and board gender diversity was significant, as measured by the presence, percentage and number of female executives. Robustness checks were performed and the results were consistent with those of the main analysis.

Research limitations/implications
Recommendations for future studies include further exploration by comparing the nexus between board gender diversity and IPO underpricing in different sectors (nonfinancial IPO firms versus financial IPO firms). Nonfinancial IPO firms are less regulated compared with financial IPO firms so the degree of IPO underpricing between them may be quite different. Additionally, future research can use endogeneity tests such as instrumental variables (IVs) and propensity score matching. Endogeneity means that a regression is misspecified in a way that makes identifying a causal effect between two economic variables difficult, if not impossible. IVs are used to control for confounding and measurement errors in observational studies. Like propensity scores, IVs can adjust for both observed and unobserved confounding effects.

Practical implications
Managers and shareholders can adequately classify board gender diversity levels to improve a firm’s financial performance. Specifically, more gender-diverse boards can reduce IPO underpricing so that the firms can generate more cash when they sell their shares in the primary market. Policymakers and regulators can specify governance mechanisms to promote diversity on the management board because board diversity can carry the information, capabilities and experience of diverse group members, which will ultimately boost firm performance.

Social implications
The role of women in society may be boosted if such initiatives are taken to increase their representation in top jobs in society.

Originality/value
To the best of the authors’ knowledge, this study is among the first to investigate the moderating role of CEO ownership on the relationship between board gender diversity and IPO underpricing. This study increases the research on diversity in corporate governance by synthesizing various indicators for female executives into a single study to determine their relationships with IPO underpricing. Moreover, this study adds to the body of knowledge on signaling theory by providing empirical evidence on the relationship between female executives on management boards and IPO underpricing.