Information asymmetry and investor valuation of IPOs: Top management team legitimacy as a capital market signal

The condition of information asymmetry between current owners and potential IPO investors creates a context wherein the legitimacy of the top management team (TMT) may serve as a valid signal of value to potential investors. The results confirm our hypotheses that TMT legitimacy is negatively correlated with post-IPO stock value run-up. Our results support a previously unexplored view of the TMT as an important signal of value in IPOs, and suggest that dual benefits accrue to the TMT selection process in IPO firms. Copyright (c) 2005 John Wiley & Sons, Ltd.