Characteristics and determinants of the board of directors of growing Spanish SMEs going public

Abstract

The purpose of this paper is to examine the characteristics and the determinants of board structure in small- and medium-sized enterprises (SMEs) in the process of going public within the continental European corporate system. These issues are explored through the study of all the initial public offerings (IPOs) in the Spanish equity market for growing SMEs, and the statistical methodologies of ordinary least squares regression and stepwise regression are applied. The results show that board size is larger than the minimum level established in law and that boards are composed of a majority of non-executive directors. In addition, the determinants of firm characteristics of board structure are firm age, level of financial leverage, and ownership structure. This research is significant since its findings should help entrepreneurs reflect on which board structure is most appropriate for this new stage of the life cycle of their company as a listed firm. This evidence is also of interest for regulators and investors, who can, therefore, better understand board structures of SMEs at the moment of IPO. This paper is the first to study characteristics and determinants of the board of directors of growing SMEs at the moment of going public. This study implies a step forward in research into the governance of small business and IPO literature, since the results differ from the evidence found for large company IPOs and contribute towards the debate regarding the need to consider the context and the type of firm in corporate governance studies.