The effect of organizational structure on firm first day underpricing, long-term performance : evidence from U.S. biotech initial public offerings from 1996 to 2004

Abstract

[ACCESS RESTRICTED TO THE UNIVERSITY OF MISSOURI AT REQUEST OF AUTHOR.] This paper investigates the effect of organizational structure on firm first-day return (underpricing), and long-term performance. Using 206 United States biotechnology initial public offerings (IPOs) during 1996 to 2004, we ask whether firms with more divisional organizational structure: Hybrid organizational structure (HYBR) and Pure divisional organizational structure (DVS) perform differently from those with traditional functional organizational structure (FUNC). We find that IPOs with more divisional organizational structure is associated with lower first-day returns (underpricing), with a significant level. We believe that more divisional firms (HYBR and DVS) share more similarity with those of pure M-form. This suggests that there is less information asymmetry for divisional firms, thus associates with lower first-day underpricing. There is no statistically significant relation between organizational structure and firm 3-year long-term performance.