How national culture affects IPO decisions? Evidence from Europe and Asia
| DOI | https://doi.org/10.1108/JABS-06-2020-0218 |
| Published date | 04 February 2021 |
| Date | 04 February 2021 |
| Pages | 457-483 |
| Subject Matter | Strategy,International business |
| Author | Dario Salerno |
How national culture affects IPO
decisions? Evidence from
Europe and Asia
Dario Salerno
Abstract
Purpose –The purpose of this paper is to investigatewhich cross-country characteristics influencethe
going-publicdecisions and how the cultural valuesof the countries affect initialpublic offering (IPO) firms’
profitabilityand risk of financial distress.
Design/methodology/approach –Using a sample of privately held and firms that went public on the
European and Asian Stock Exchanges between 2007 and 2011, this paper applies probit model and
ordinary least squares regression to examine which cross-country characteristics could affect the
decision to go public and how cultural values affect the profitability and risk of IPO firms.[AQ1] In
addition, to overcome multicollinearity concerns caused by the use of Global Leadership and
Organizational Behavioural Effectiveness culture dimensions, this paper factor analyses the
dimensions using principal component analysis.
Findings –The results are as follows.First, this paper finds that firms in tradition-oriented countries are
less likely to go public,while firms in result-oriented countries are more likelyto hold an IPO. Second, this
paper finds that country characteristics (i.e. financial deepening and taxation) affect the going-public
decision. Third, this paper documents that IPO firms in traditionally and result-oriented countries have
positiveprofitability and less risk of financialdistress.
Practical implications –This study is intended for all those European and Asian policymakers and
managers who want to improve their knowledge about what different indicators can establish the
decision of firms that going-public facing different stages of their lifecycle. Specifically, policymakers
wishing to promote IPO-activity in their countries may find it useful to strengthen the set of formal-
institutions both to reduce corporate-taxation and to reduce the uncertainty associated with first-time
share issuanceand investment in such initiatives. This study is also intended for managersof companies
that are not yet publicly-traded on their national stock-markets to be helpful to their decision-making
processes.
Originality/value –This paper aims to extend the growing literature on the effects of cross-country
factors on economic decision-making in finance and particularly adds to research that investigates the
influenceof these factors on the IPO decision of Europeanand Asian firms.
Keywords IPO, Factor analysis, Private firms, Cross-country characteristics
Paper type Research paper
1. Introduction
The determinants of the going-public decision have a long history in the corporate finance
literature, dating back at least to Pagano et al. (1998) and continuing to the present day
(see, among others, Chemmanur et al.,2010;Piotroski and Zhang, 2014). In addition to a
deep body of research on the aspects of initial public offering (IPO) decisions (Pagano
et al.,1998
;Brav, 2009;Chemmanur et al.,2010), previous studies have examined different
factors that could influence the decision to go public, including raising money for the
expansion of operations (Pagano et al., 1998;Brav, 2009), increasing market value
(DuCharme et al., 2001), providingliquidity for shareholders (Stoughton and Zechner, 1998;
Dario Salerno is based at
University of Naples –
Parthenope, Napoli, Italy.
Received 2 June 2020
Revised 9 September 2020
15 October 2020
Accepted 31 October 2020
The author especially grateful
to Antonio Meles for his
continuous guidance. For
helpful comments or
discussions, He give a special
thanks to Claudio Porzio,
Gabriele Sampagnaro,
Leonidas Barboupols, Gianni
Nicolini, Vincenzo Farina,
Duccio Martelli, Sanjay Kumar
Singh (the editor) and two
anonymous referees. This
paper has also benefitted from
constructive comments and
suggestions offered by the
participants of the seminar
participants at the University of
Rome “Tor Vergata” and
University of Naples
“Parthenope”. The author also
want to give a special thanks to
Francesca Morelli for her
support.
DOI 10.1108/JABS-06-2020-0218 VOL. 15 NO. 3 2021, pp. 457-483, ©Emerald Publishing Limited, ISSN 1558-7894 jJOURNAL OF ASIA BUSINESS STUDIES jPAGE 457
Chemmanur and Fulghieri, 1999), implementing an estate tax-planning strategy (Reese,
1998) and enhancing the company’s reputation (Forestieri, 2015). Despite a substantial
body of research on the different reasons that drive IPO decisions, an unresolved question
remains: which cross-country characteristics influence firms’ decisions to go public?
Answering this question is important because of the key role of a country’s economic
system in affecting the likelihood that a firm will go public (Shleifer and Wolfenzon, 2002;
Stulz, 2009). For example, theoretical models by Shleifer and Wolfenzon (2002) and Stulz
(2009) examine how a country’s laws, disclosure rules and governance can influence the
benefits and costs for business owners and thus affect the likelihood of a company
becoming public in a particular country [1]. However, Doidge et al. (2013) found that there
has been a striking evolution over time in IPO activity across countries. In particular, their
analysis shows that countries with better institutions have more domestic IPO activity,
measured by either the annual number of domestic IPOs scaled by the lagged number of
domestic listed firms or as the annual proceeds raised in domestic IPOs scaled by lagged
gross domestic product (GDP) (Doidge et al.,2013). In this paper, we contribute to the
previous literature by providing additional evidence on which cross-country characteristics
can explain the going-public decision. To do so, we analyse a unique data set consisting of
1,594 firms that went public on European and Asian stock exchanges between 2007 and
2011 and 291,178 firms that remained private over the same period [2]. The decision to
focus on the European and Asian IPO markets was made primarily for two reasons. Firstly,
this choice recognizes that they are highly representative of the global IPO market. In this
respect, in Asian capital markets, IPOs perform one of the most crucial roles in the
allocation of new capital. According to an Ernst and Young (2016) survey, the Asia–Pacific
region was the epicentre of global IPO activity, dominating in both volume and proceeds
raised and the region continues to gain market share. In 2016, Asia–Pacific exchanges
accounted for 60% of the global number of IPOs and 54% of proceeds raised, the third
successive year of global market share gains by deal number and the second successive
year by capital raised. Furthermore, in our analysis, we find that in our sample period (i.e.
2007–2011), European and Asian IPO markets produced 2,704 IPOs, while only 968 IPOs
were produced in the USA IPO market [ZephyrBureau Van Dijk (BVD)]. Secondly, there is a
lack of data on the USA privately held firms necessary for direct analysis of the choice
between public and private firms [3](Asker et al.,2016).
In addition, to investigate the cross-country characteristics that influence the probability of a
firm going public, we construct a data set with a wide range of country characteristics,
including national culture and other country variables (such as corporate taxation and
domestic credit provided by the financial sector in a country). In considering national
culture variables, we use the recent and comprehensive Global Leadership and
Organizational Behavioural Effectiveness (GLOBE) culture framework. There are several
advantages of the GLOBE culture framework over other available culture studies. Firstly, it
constructs nine dimensions of culture that reflect all the cultural aspects of the countries. It
provides a score for each dimension that can be used in empirical settings. Leung et al.
(2005) highlight that the GLOBE culture framework adds to the Hofstede (2001) culture
study, as it includes two additional dimensions (performance orientation and humane
orientation) that have significant implications for international business. Secondly, it clearly
differentiates between cultural values and cultural practices and Ahern et al. (2015) argue
that cultural values affect economic decision-making. One possible concern with this
framework is that the GLOBE culture dimensions are correlated with one another and can
cause a multicollinearityproblem (Hofstede, 2006).
To overcome this potential problem, we factor to analyse the dimensions using principal
component analysis, which yieldstwo viable and statistically significant factors. Specifically,
we interpret these factors as follows: tradition-oriented (i.e. individuals or groups show less
tolerance for uncertain events, have a high long-term orientation, discourage gender
equality and emphasize nationalism) and result- and people-oriented (i.e. individuals or
PAGE 458 jJOURNAL OF ASIA BUSINESS STUDIES jVOL. 15 NO. 3 2021
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