• Business Group Internationalization, Family Control, and IPO Underpricing

Abstract

This research investigates the impacts of business group internationalization on the underpricing of initial public offering (IPO) firms affiliated with business groups. Business group internationalization considers aspects from group foreign assets, group foreign sales, and foreign subsidiaries. Based on a sample of IPO firms affiliated with business groups between 2001 and 2010, this study finds that IPO firms with a higher degree of group internationalization exhibit a greater degree of IPO underpricing. When measured by foreign sales, group internationalization has a pronounced impact on IPO underpricing. Group internationalization worsens companies’ agency problems and operating risks, which leads to greater IPO underpricing due to investors expecting premiums. Furthermore, our study finds that higher group ownership enhances the goal alignment between groups and their affiliated firms, reducing the degree of IPO underpricing arising from group internationalization. This study contributes to the current literature in the areas of international business, family business, and financial accounting.

Keywords: Business Group, Internationalization, Family Control, IPO Underpricing