• Are Underwriters and Investors Concerned Regarding Intellectual Capital? Evidence from IPOs in Taiwan

Abstract

This study discusses how intellectual capital (IC) influences the pricing decisions of underwriters, and the underpricing phenomenon. Based on the theoretical framework of Skandia’s intellectual capital navigator, proposed by Edvinsson and Malone (1997), this research discusses the effect of IC on the offer price and underpricing of initial public offerings (IPOs). The IC concept suggested by Edvinsson and Malone (1997) is comprehensive and holistic, comprising four dimensions: human capital, customer capital, process capital, and innovation capital. Considering the four dimensions proposed, this research examines previous literature to obtain appropriate proxy variables to measure each dimension. For each dimension, we employ principal component analysis to integrate these proxy variables into a single evaluation index. This will compensate for the shortfalls of past research, which only considered a single dimension or a single variable in each dimension. Finally, we use multiple regression analysis to examine the effect of IC on the offer price and underpricing of IPOs. Results from empirical research indicate that the higher the intellectual capital reported by companies is, the better the investors evaluate the company, and subsequently, the higher the offer price set by underwriters is. In addition, a higher intellectual capital reduces information asymmetry between the company and its investors. Thus, the extent of underpricing will also subsequently decrease.

Keywords: Intellectual Capital, Initial Public Offerings (IPOs), Information Asymmetry, Offer Price, Underpricing