Abstract

"Directors' Experience and the Performance of IPOs in the Rubber Promotion Boom: A Legitimacy Theory Perspective"

Oluwatoyin Dosumu, University of Manchester (oluwatoyin.dosumu@manchester.ac.uk)

This study investigates the performance of newly listed firms during the rubber promotion boom in the UK. It examines whether directors' experience, as measured by directors sitting on the board of more than one issue, translates into more successful floatation in terms of the amount of raised capital on the special settlement segment of the London Stock Exchange (LSE). We used hand-collected data of rubber firms promoted in 1910. This era is crucial for our analysis, as it was an era of rubber promotion boom which witnessed a large number of rubber firms floating on the unregulated special settlement segment of the LSE and raising substantial capital via Initial Public Offering (IPO). We offer both quantitative and qualitative case study evidence to support a triangulated approach. Our quantitative findings reveal that rubber firms with experienced directors raised more capital on London Stock Exchange during the rubber boom. This finding is consistent with our argument that experienced directors provide firms with legitimacy which translates to raising more capital on the special settlement market despite its associated challenges. Our qualitative case study evidence shows that experienced directors that became prominent during the rubber promotion boom had prior experience as either tea or coffee merchants or tea/coffee/rubber planters in Asia. In addition, having previous colonial administration experience or family ties in Asia also positioned individuals for numerous board appointments during the rubber boom. This evidence underscores the importance of location experience for directors during the boom. Collectively, our evidence offers an additional dimension to existing research on interlocking directorship, shedding light on the particular experiences that differentiate famous directors from their peers, and highlighting the importance of directors’ experience on the performance of new issues.