An Empirical Study on Corporate Governance, special reference to Board Size: What Role the Institutional Investor can play

in the context of Corporate Bangladesh

By Tanvir Hasib ID # 0310154

An Internship Report Presented in Partial Fulfillment of the Requirements for the Degree Bachelor of Business Administration

INDEPENDENT UNIVERSITY, BANGLADESH May 07, 2007

An Empirical Study on Corporate Governance, Special Reference to Board Size: What Role the Institutional Investor can Play in the Context of Bangladesh

By Tanvir Hasib ID # 0310154

has been approved May 2007

_____________________________ Mr. Shubhankar Shil Lecturer School of Business Independent University, Bangladesh

May 07, 2007

Mr. Shubhankar Shil Lecturer School of Business Independent University, Bangladesh Dhaka

Subject: Submission of the internship report.

Dear Sir: This is the most excellent time when I have the overwhelming experience of submitting the internship report which I have prepared with the best of my skill and hard work. I joined Hong Kong Shanghai Banking Corporation (HSBC) for the internship and worked on the Board Size of IPO in the context of Bangladesh. This report has attempted to focus on the firm characteristics such as firm asset, cash flow, firm age, firm size, institutional investors in determining the board size at the time of IPO. I have prepared this report with the best feasible ways as well as have tried to make it as sound as possible.

Hence, I would like to take this opportunity to ask you to thoughtfully go through the report and evaluate it for yourself how far have I been successful in the endeavor. Please kindly be humble to any unintended errors.

Yours sincerely,

______________ Tanvir Hasib ID # 0310154

Acknowledgement
Completion of this report was simply possible due to the cooperation and work of many people. To all those so freely offered their advices and encouragements in this endeavor; I offer my most sincere appreciations.

I am thankful to the members of Hong Kong Shanghai Banking Corporation (HSBC). I am grateful to Mr. Syed Najibullah for his great cooperation and help. Moreover, I was well-guided by him.

And finally, I would like to express my extreme gratitude to my supervisor, Mr. Shubhankar Shil. His contribution boosted my confidence as well as helped me finish my study on time.

II

Table of Content
Contents List of tables List of figures Abstract Page no. V V VI

1. Introduction 1 2. Purpose of the study ... 1 3. Problem statement .............. 2 4. Literature Review 4.1 Definition of Corporate Governance ............... 2 4.2 Corporate Governance In Bangladesh ..... 7 5. Research Question ................... 14 6. Research Hypothesis ................ 15 7. Conceptual Framework ............ 16 8. Research Timeline ........... 16 9. Methodology 9.1 Research Design ......... 17 9.2 Sampling Method ... 17 9.3 Data Collection Procedure ..... 17 9.4 Measures of variable .......... 18 9.5 Data Analysis ..... 18 10. Result of research 10.1 Correlation Analysis ............ 19

III

10.2 Regression Analysis ......... 20 10.3 Hypothesis Analysis ......... 22 11. Limitation of the study ... 22 12. Recommendations and Concluding Remarks ............ 22 13. Paths forwarded to further studies ............. 24 14. References .......... 25

IV

List of Tables
Contents Page no

1. Research Timeline ....................... 16 2. Correlation Matrix ... 19 3. Standardized Regression Matrix .. 20 4. Stepwise regression Matrix .......... 22

List of Figures
Contents Page no

1. The Conceptual Framework ......... 16

Abstract
History shows a repetitive cycle of corporations over-reaching their boundaries and causing social turmoil. Governments are faced with the task of reining them in by enacting regulations. Investors are faced with the task of preserving their individual assets. Corporate governance remains the core issue in these battles. To institute effective corporate governance that protects minority shareholders is conceivably the most significant at the time of an initial public offering (IPO), because the IPO represents the first time that most firms raise equity from isolated investors. One mechanism for supervising the firm is with the board of directors. With new data gathered from IPO prospectuses, the board size and composition for 23 IPO firms have been explained. The empirical study, which is of exploratory in nature, sheds light on the role of institutional shareholders and firms characteristics on the size of board. The researcher employed correlation and regression analyses to explore any existing relationship between the studied variables in context of Bangladesh. The results showed the intensity of fixed assets, among all other firm characteristics, significantly influences the size of the board; whereas institutional investors were found to be insignificantly related with the composition of board. This study considered both manufacturing and financial institution which might have negative impact in the findings of the study. Future study should address this issue and consider a larger sample size to look into the influence of both firm characteristics and share of institutional shareholders in the composition of board.

VI

Introduction
Corporate governance is not a new issue. It may be dated back to when incorporation with limited liability became available in the nineteenth century, with the need for legislation and regulation (Vinten, 1998). Recently debate has focused on more specific concerns. These revolve around the accountability of those in control of companies to those with the residual financial interest in corporate success, normally the shareholders, but when the company is approaching insolvency, then also its creditors, as well as widening discussion to consider stakeholders. Establishing effective corporate governance that protects minority shareholders is perhaps the most important at the time of an initial public offering (IPO), because the IPO represents the first time that most firms raise equity from dispersed investors (Baker & Gompers, 2003). One mechanism for supervising the firm is with the board of directors. With new data gathered from IPO prospectuses, the board size and composition for 23 IPO firms have been explained. The empirical results shed light on the role of firms characteristics. Unlike much of the existing literature on the board of directors, this analysis is organized just about a corporate event the IPO rather than in calendar time. Since existing shareholders bear the cost of suboptimal governance, board structure is more likely to be chosen optimally at the time of the IPO. By contrast, in calendar time, board structure is as much a consequence of past performance.

Purpose of the study

There has been an unprecedented transformation in the socio-economic, technological, political, and organizational spheres. This accelerated rate of change poses a solemn challenge to organizations, either to foresee and manage change efficiently in order to organizations, or meet the fate of a dinosaur. In this context, corporate governance and composition of board size at the

Determinants of Board Size at the Time of IPO

time of IPO is needed because the old theories of IPO have become less relevant. Therefore, the purpose of the study is to explore the influence of fixed asset intensity, firm size, cash flow to sales, firm age till IPO, and institutional investors in determining the board size.

Problem Statement
Statement of problem of this paper is: firm characteristics such as fixed asset intensity, firm size, firm age till IPO, cash flow to sales, and institutional investors play major role in determining the board size at the time of IPO in the context of Bangladesh.

Literature Review
Definition of Corporate Governance "Corporate Governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The corporate governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society" (Sir Adrian Cadbury in 'Global Corporate Governance Forum', World Bank, 2000) Blair (1995),Corporate governance is about "the whole set of legal, cultural, and institutional arrangements that determine what public corporations can do, who controls them, how that control is exercised, and how the risks and return from the activities they undertake are allocated." McRitchie (1999) provides most comprehensive definition of corporate governance. According to him,

Determinants of Board Size at the Time of IPO

Corporate governance is most often viewed as both the structure and the relationships which determine corporate direction and performance. The board of directors is typically central to corporate governance. Its relationship to the other primary participants, typically shareholders and management, is critical. Additional participants include employees, customers, suppliers, and creditors. The corporate governance framework also depends on the legal, regulatory, institutional and ethical environment of the community. Whereas the 20th century might be viewed as the age of management, the early 21st century is predicted to be more focused on governance. Both terms address control of corporations but governance has always required an examination of underlying purpose and legitimacy. Corporate governance refers to how a corporation is governed. Who has the authority to make decisions for a corporation within what guidelines? This is the corporations governance. In the United States, the governance of corporations is largely determined by state laws of incorporation. State laws typically say that each corporation must be "managed by or under the direction of its boards of directors." More specifically, corporate boards of directors are responsible for certain decisions on behalf of the corporation. At a minimum, as stated in most state statutes of incorporation, director approval is usually required for amending corporation bylaws, issuing shares, or declaring dividends. Also, the board alone can recommend that shareholders vote to amend articles of incorporation, dissolve the corporation, or sell the corporation. No other person or entity except the board can take these actions. That is why discussions of "corporate governance" often focus on boards. As demonstrated by Pass (2004, p. 52), corporate governance actually deals with the duties and responsibilities of a company's board of directors in managing the company and their relationships with the shareholders of the company and the stakeholder groups. To put it into

Determinants of Board Size at the Time of IPO

effective work, in essence, such dealing should be appropriately governed, regulated, imposed and enforced. Many existing studies in good corporate governance have focused on: the roles of nonexecutive versus executive members of the board (Pass, 2004), the independence of the board of directors (Zandstra, 2002), the role, independence and disclosure of audit committee (Rezaee, Olibe, & Minmier, 2003), the enforcement of compliance and role of internal auditors (Vinten, 1998, 2000, 2002), altogether grouped into underlying values of corporate governance perspectives being the:

Accountability (Spira, 2001); Integrity (Grant, 2003); Efficiency (Walker & Fox, 2002); and Transparency (Rezaee et al., 2003). As such, appropriate implementation and compliance with these principles are perceived

as inevitably critical factors for corporate long-term sustainability. Over these years, despite the increasing emergence of corporate failures (notwithstanding the success stories), debates on how salient is the role of corporate governance in providing a platform for best practices to sustain the businesses have continued to roll. The focus of the questions has remained the same, on why corporations arrive at the brink of collapse and therefore putting their viabilities at stake. Is it because the corporate governance framework is not in place, or if it were in place, is it because corporate governance's implementation does not work as it should be? The antecedents of failures seem unchanged, even though the prescriptions to sustain have existed for a long time.

Determinants of Board Size at the Time of IPO

In an effort to develop a proactive approach, best practice guidelines have been developed and prescribed by major organisations such as the Organisation for Economics Co-operation and Development (OECD) (2004a, b) and through a forum of the World Bank and OECD (2002). All of these are again to advocate the common threads of core corporate governance perspectives: to improve accountability, integrity, efficiency and transparency. Yet, the story seems to continue with cases unveiling facts where many firms take the good corporate governance perspectives seriously, embedded into the hearts of their businesses, while some others take the framework for granted, as to driving themselves into weakening positions not originating from the business. Corporate scandals have revealed wrongdoing of several different kinds. So it is helpful to separate the issues, which have emerged, and also to categorize them. As constructed by Robins (2006), the following list begins with technical issues, those that can be specified more or less precisely. It continues with political issues, those, which are broader and less, easily defined but nonetheless have clear focus. It ends with what are labeled as cultural issues, those, which are diffuse and most difficult of all to specify with precision. All these issues have received considerable public attention. However the list is certainly not exhaustive. Other issues, such as past inattention of the ratings agencies to the quality of reported company information, could easily be added to this list. Moreover new issues will continue to arise. The author for clarity distinguishes the above categories; but both the labels and the categories themselves could be challenged. In sequential order, from simple to complex, the issues are:

1. Technical:

Accounting rules and principles;

Determinants of Board Size at the Time of IPO

Auditor responsibility and accountability; and Board responsibility and accountability.

2. Political:

Professional conflicts of interest and corporate transparency; Regulatory institutions and prudential responsibility; and The role played by sectional interest, influence and politics.

3. Cultural:

The overall quality of corporate governance; and Corporate ethics, honesty and the law. The benefit of separating these issues is that it facilitates analysis and recommendation.

In this classification, technical issues are those where definition is a matter of professional or legal judgment. These matters can be defined rather precisely and so minimize the room available for dispute. It follows that it may always be possible to achieve improvement in these matters through tighter or more relevant definitions. The political issues are inescapably less amenable to precise definition but, despite, can be regulated in a consistent and satisfactory way. Improvement is here more difficult because broader judgment is required; making consistency more difficult, but improvement is still possible through upgrading of regulatory institutions. The greatest difficulty comes with the cultural issues. These are broad in character and deeply embedded in society as a whole. So it is not obvious how changes might be achieved. It follows that improvement is unlikely to be achieved easily. It also follows that improvement is not necessarily going to be achieved through, say, legislative means alone. These issues are ultimately matters of individual choice and personal ethics.

Determinants of Board Size at the Time of IPO

Corporate Governance In Bangladesh In Bangladesh, however, there have been no severe corporate scandals, which have not been enough to send shock waves to undermine confidence in the financial system, nor has the country found that it has reached the limits of conventional corporate financing mainly through bank lending. The country report recognizes that the relatively low level of international investment in Bangladesh does not offer a sufficient motivation for improving corporate governance, nor are there many traditional domestic motivations for improvement in corporate governance practices in Bangladesh. However, this does not mean that Bangladesh should provide low priority to corporate governance, as there are reasons other than capital market reforms to focus on corporate governance. The Bangladesh country report notes the importance of corporate governance for a competitive private sector in a global market and for efficiently utilizing domestic investment to achieve greater economic development. Good corporate governance practices will help out developing and stimulating better business management, strategic management, and risk management, which, in the long-term, will make Bangladeshi businesses more competitive. Besides, the lessons from the experience of the neighboring countries in South Asia are such that Bangladesh can set up good corporate governance to prevent the problems, which have afflicted other countries, rather than to solve them after the event. The country reports go beyond describing the importance of corporate governance in theoretical and policy terms they also provide indications of the efficiency of corporate governance. Conceivably the most important question for corporate governance is whether wellgoverned companies perform better (in terms of growth, profitability and share price) and perform better (in terms of corporate social and environmental responsibility and of corporate

Determinants of Board Size at the Time of IPO

citizenship, especially in tackling the supply side of corruption) than do badly-governed companies. Code of Corporate Governance for Bangladesh is to develop the general quality of corporate governance practices. The Code does this by defining best practices of corporate governance and specific steps that organizations can acquire to improve corporate governance. The Code, thereby, begins to lift up the quality and level of corporate governance to be expected from organizations; in some areas the Code specifies more rigorous practices than is required by Bangladeshi law, but it should be emphasized that these added requirements are in keeping with international best practices. Even if small organizations do not feel they can meet all the requirements right away, the Code provides a standard that can be used to measure progress towards the goal of best practices. The Code of Corporate Governance, consequently, prescribes the principles, procedures and process through which better corporate governance practices may progressively be introduced. By itself, the Code is organized into Principles and Guidelines. Organizations can start on the path to better corporate governance first by acknowledging the Principles of Corporate Governance and then by incorporating them through their own initial implementation strategies, which they must nonetheless justify and explain. The next step would be to begin complying fully with the Guidelines for implementation, as set out in the Code, which signify an appropriate synthesis of international and indigenous best practices that are wholly applicable to the Bangladeshi context. Many of the best organizations in Bangladesh already have practices and procedures in accordance with the provisions of the Code. On the other hand, the Code is also a mechanism to

Determinants of Board Size at the Time of IPO

disseminate these best practices to every organization nationwide. Furthermore, the best corporate governance practices, as enshrined in the Code, can improve overall accountability and performance throughout the private sector as well as the NGO and SOE sectors. Lastly, the spirit of the Code seeks to enable organizations to grow and attract greater investment, rather than being a hindrance to growth. Individual organizations can act in accordance with the Code by writing the provisions into their Articles of Association and incorporating the Code into company procedures and reporting practices. Management and the Board of Directors must use the Code of Corporate Governance as a guideline to develop procedures for evaluation and accountability within the organization. Every organization should develop a Code of Conduct for their employees. All employees should read, understand, and sign the Code of Conduct; thereafter, violations of this Code of Conduct must be penalized. The most efficient regulatory step to implement the Code of Corporate Governance could be its adoption by the Securities and Exchange Commission. SEC already circulated a notification dated February 20, 2006, which says all the enlisted companies have to attach a Status of Compliance report, which will illustrate to what extent the companies conform to the code of corporate governance as imposed by SEC. A copy of SECs notification has been appended in Appendix 1. The Board of Directors is the vital entity in a functioning corporate governance system, since it is the governing body of any organization. The board is accountable to the shareholders as well as stakeholders of the organization. To meet its organizational objectives, the board has to provide strategic policy and direction to the management, but should not be involved in dayto-day operational decisions. Management is accountable to the board, and as a result

Determinants of Board Size at the Time of IPO

10

information systems that provide relevant, transparent, and material information to the board are imperative. Board Composition refers to the combination of outsiders and insiders on a board of directors. Insiders are usually defined as those directors who also hold management positions in the firm, while outside directors have generally been defined as non-management, or independent members of board (Johnson et al, 1996). Institutional shareholders are parties that control shares for the benefit of others, together with mutual funds, pension funds, other companies, and various government entities. Institutional shareholders have a unique and significant role to play in ensuring good corporate governance and have an important responsibility to fiduciaries, the company, and other shareholders. Institutional shareholders can be a commanding force for reform in company practices. In many developed and emerging markets they play an significant role in improving corporate governance. Institutional investors have the key ingredients to motivate companies to change practices: they must have staff qualified to evaluate financial statements, business strategy, and company performance; they control large amounts of capital that must be invested; they serve as a leading indicator to other investors; and they control blocks of shares which force companies to take notice of their concerns. On the other hand, for institutional investors to become a powerful motivating force for change, they must take seriously their responsibility to achieve results for their beneficiaries and must exercise their shareholder rights in a responsible manner. For this, the Code emphasizes the role of institutional shareholders. To begin to set their own standard for investment policy and corporate governance, institutional shareholders must publish the corporate governance principles and practices, which

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they expect from the companies in which they invest, and also their own investment principles and practices which they intend to follow. Public limited companies are owned by their shareholders, but the diluted nature of ownership indicates that the running of the company is delegated to a management team. The key element of the management, which bears the ultimate responsibility for providing the strategic direction as well as operational success of the firm team, is the board of directors. If the board succeeds in carrying out its implementation and ratification roles, it will guarantee that shareholder interests are safeguarded. Therefore the appropriate internal control and monitoring mechanisms are essential. Jensen (1986) defines free cash flow as cash flow generated by the firm in excess of the amount needed to fund all available positive NPV projects. In addition, he shows that a company with a large amount of free cash flows is subject to higher agency costs of equity, and only good governance system can ensure better performance implying positive relation between free cash flow and performanceThe usage of this free cash flow opens up serious potential disagreements of interest between managers and shareholders. Fixed asset typically correspond to the largest store of value that a company has. These are the means of production that the company uses to deliver its services or produce its products (A. Wayne Avellanet, 2003). From an internal control viewpoint, fixed asset accounting is most likely the simplest and most recurring area of accounting. Some examples of fixed assets are Land Building Leasehold Improvements Furniture

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Production Equipment Computer Equipment Vehicles- Trucks and Autos Vehicles- Aircraft Software Intangible Assets Patents Goodwill and Copyrights When evaluating a companys internal control and key risks associated with fixed assets, the following aspects should be considered: Fixed asset acquisition Fixed asset disposal Fixed asset inventory Safeguarding fixed assets and Maintaining fixed assets Fixed asset values should be maintained in the proper accounts. The accounting for most physical asset is fundamental and recurring in nature. However, the accounting for intangibles, such as goodwill, is more complex. This can be especially true when intangible assets are the result of a merger or acquisition Evans (1987a, b) discovered on the basis of panel data from U.S. manufacturing firms that firm size as well as age have a negative effect on firm growth. The fact is that a firm, that is

Determinants of Board Size at the Time of IPO

13

devised in order to overcome the mortality of a human being, gets old and the growth rate falls off slowly due to aging, which has an important meaning for economic policy. As a measure of firm size, the amount of property, amount of sales or total number of employees is typically adopted in conventional research. None of these measures are a acceptable means with which to grasp the bulk of management resources of a firm such as human resources and tangible assets. Much of the recent literature, on the other hand, adopted the number of employees as a measure of size. In addition to that, it is thought that one of the main reasons for investigating this issue is to determine whether large or small firms are the key source of new employment. These validate the significant negative relation among firm size, firm age and firm growth rate, and also confirm the significant positive relation among firm size, firm age and firm survivability. The result obtained here is that firm size and firm age have a important negative effect on firm growth and have a significant positive effect on survivability in general. A key characteristic of firm is their age. Beneath the comparatively gradual changes in summative employment lies a far less soothing picture at the firm level (Leonard 1987; Davis and Haltiwanger 1992). This finding has led to substantial interest in the determinants of firm birth, growth, and death rates (Jovanovic 1982; Dunne, Roberts and Samuelson 1988, 1989), and, more broadly, to interest in differences between old and young firms. Dunne et al (1989) report that manufacturing plants that have been in business longer are less likely to close, and Brock and Evans (1986) showed that older firms are less likely to fail (controlling for plat and firm size, respectively).

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Baker & Gompers, (2003) showed that board structure is the firm outcomes of the firms characteristics (such as fixed asset, cash flow, firm size, firm age and so forth) in the prior years before the IPO. Following are the operational definition; The number of directors participating in the board of directors determines the size of board. Firm size has been determined by the total assets of the firm. Size is best proxied by total asset (Fosberg, 2004) Intensity of fixed assets has been found by dividing fixed assets by the total assets. Cash flow to sales has been found by dividing cash in hand by total sales. Firm age till IPO is the age of the firm from the date of incorporation. Share of institutional shareholders has been found by dividing the share of them by total outstanding share before IPO. However, former studies measured the size by total assets (Clarkson, 2000), or turnover (Chan et al., 1996), and natural logarithm of capital (Brown et al., 2000; Mak, 1996).

Research Questions
1. Is there any significant relationship between Intensity of Fixed Assets and Board Size (no. of directors) at the time of IPO in the context of Bangladesh? 2. Is there any significant relationship between Firm Size and Board Size (no. of directors) at the time of IPO in the context of Bangladesh? 3. Is there any significant relationship between Cash Flow to Sales and Board Size (no. of directors) at the time of IPO in the context of Bangladesh?

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4. Is there any significant relationship between Firm age till IPO and Board Size (no. of directors) at the time of IPO in the context of Bangladesh? 5. Is there any significant relationship between share of Institutional Investors and Board Size (no. of directors) at the time of IPO in the context of Bangladesh?

Research Hypotheses
1. There is a significant relationship between Intensity of Fixed Assets and Board Size (no. of directors) at the time of IPO in the context of Bangladesh. 2. There is a significant relationship between Firm Size and Board Size (no. of directors) at the time of IPO in the context of Bangladesh. 3. There is a significant relationship between Cash Flow to Sales and Board Size (no. of directors) at the time of IPO in the context of Bangladesh. 4. There is a significant relationship between Firm age till IPO and Board Size (no. of directors) at the time of IPO in the context of Bangladesh. 5. There is a significant relationship between share of Institutional Investors and Board Size (no. of directors) at the time of IPO in the context of Bangladesh.

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Conceptual Framework

FIRM CHARACTERISTICS Firm Size Intensity of Fixed Assets Cash Flow to Sales Firm Age till IPO

BOARD SIZE

INSTITUITIONAL INVESTORS

Figure 1: Conceptual frame between independent variables and other related variables

Research Timeline
Table1: The timeline for the research is project in the table below: Time February 10, 2007- February 25, 2007 March 01, 2007 March 20, 2007 March 25, 2007- April 05, 2007 April 06, 2007- April 10, 2007 April 13, 2007- April 19, 2007 April 21, 2007- April 25, 2007 April 26, 2007- April 29, 2007 May 07, 2007

Activity
Problem searching Literature Review Data collection Data input & data analysis Results documentation Report completion References and others Report Submission

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Methodology
Research Design The conceptual framework (Figure 1) demonstrates the name of research variables and relationship within them. The hypotheses developed to be tested evidently support this model. In this study, the researcher is going to investigate the relationship between intensity of fixed asset, firm size, cash flow to sales, firm age till IPO, institutional investors, and board size in context of Bangladesh. Research that studies the relationship between two or more variables is referred to as a correlational study (Cooper & Schindler, 2003). Therefore, a correlational research design has been adopted in order to test the hypotheses. The model (Figure 1) suggests this type of design as well. Here, intensity of fixed asset, firm size, cash flow to sales, firm age till IPO, and institutional investors are considered as the independent variable, whereas board size is considered as dependent variable.

Sampling Method Initial sample was consisted of 26 companies. The data on board structure were collected from IPO prospectuses of different firms. From this small sample, 3 companies were eliminated due to unavailability of required data.

Data Collection Procedure The prospectuses of the chosen companies are only source of required data. Since the current study is of financial in nature, the financial statements and the subsidiary notes would be better of searching for information required.

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Measures of variables The basic model of the current study is of following form: BSj = F (FCj, ISj) Here, BSj = jth firms board size; FCj = firm characteristic as defined over firms intensity of fixed assets, firm size, cash flow to sales, and firm age till IPO. ISj = shares hold by institutional shareholders in j-th firm The exact specification of the model is as follows: (BSj) = 1 (IFAj) + 2 (FSj) + 3 (CFS j) + 4 (A j) + 4 (ISj) + IFAj is the ratio of fixed assets to total assets of a firm, FSj is the firm size expressed through total assets of the firm, CFS j is the ratio of cash flow to sales of a firm, A j is the firms age till IPO. Data Analysis After collecting the data, correlation matrix (Pearsons Correlation analysis) for the variables has been shown in order to look for significant correlations among the variables. Correlation analysis is the statistical tool that can be used to explain the degree to which one variable is linearly related to another (Levin & Rubin, 1998). The researcher has conducted regression analysis to test the strength of associations between the studied variables as well. The Statistical Package for Social Science (SPSS) software (version 12.0) has been employed to carry out the above analyses through using the data collected from the annual reports, as it offers greater flexibility and visualization.

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Result of Research
Correlation Analysis A correlation analysis has been conducted on all the variables to explore the relationship among variables. For interpreting the strength of relationships among variables, the guideline suggested by Rowntree (1981) has been followed; and the classification of the correlation coefficient (r) is as follows: 0.0 to 0.2 0.2 to 0.4 0.4 to 0.7 0.7 to 0.9 0.9 to 1.0 Very weak, negligible Weak, low Moderate Strong, high marked Very strong, very high

The bivariate correlation procedure was a subject to a two tailed test of statistical significance at two different levels highly significant (p<. 001) and significant (p<. 01) or (p<.05). The results of the correlational analysis are shown in Table 2:

Table 2: Correlation Matrix for intensity of fixed asset, Firm Size, and Firm age till IPO, Cash Flow to sales, Institutional Investors and Board Size. Scale Firm Size Firm Age Board Size Fixed Asset Intensity Cash flow to sales Institutional Shareholders
Note: *p< 0.05 & **p<0.01

Firm Size -

Firm Age 0.109 -

Board Size 0.28 -0.077 -

Fixed Asset Intensity -0.187 -0.049 -0.495* -

Cash flow to Sales 0.74 -0.049 -0.184 -0.174 -

Institutional Shareholders 0.046 0.581** -0.375 0.409 -0.191 -

Correlational analysis illustrates firm size and board size is positively correlated (r=0.28), although not significant in nature. It implies with the size of firm, the board size increases so that

Determinants of Board Size at the Time of IPO

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it becomes easier for the members to concentrate on the different aspects of firm more profoundly. Firm age is negatively correlated with board size (r=.0.077), which implies the more experience the firm is the less it is required to have a large board to operate the firm. In addition, the above table also shows intensity of fixed assets (r= -0.174), cash flow to sales (r= -0.184), and participation of institutional shareholders (r= -0.375) are negatively correlated with board size. However, board size has a significant correlation ship with intensity of fixed assets at p<.05. It can be inferred that smaller firms with higher intensity of fixed assets as well as better cash flow position tends to have board consisting of fewer members. In fact it can be inferred that the problematic firms have larger board size for proper monitoring of the business activity and for reducing the conflict of interest if any. In line the literature, the participation of institutional shareholders reduces the board size, since the institution, which has stake in any firm, tends to monitor its investment strictly. This is found through the negative correlation-ship in table 2.

Regression Analyses Standardized Regression

Table 3: Standardized regression analysis

B Firm Age Firm Size Cash flow to sales Institutional Shareholder Fixed Asset Intensity 0.26 0.000 -0.182 -2.144 -5.717

Std. Error 0.113 0.000 0.116 2.065 3.086

Beta 0.058 -0.023 -0.310 -0.290 -0.432

R2 0.374

Standardized regression analysis illustrates all the independent variables can explain only 37.4% variation in the dependent variables. The rest of the influences can be traced by the other factors,

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which are not considered in this study. The value of beta coefficient conforms to the behavior between dependent and independent variables as found in the correlation analysis. The comparatively higher beta value (-0.432) of fixed asset intensity shows it plays a greater role in determining the board size in Bangladesh.

Stepwise Regression Stepwise regression was conducted to asses the relationship among variables. Hanushek and Jackson (1977) recommended that stepwise regression is a useful procedure in determining most significantly related variables in explaining the behavior in question and this procedure not only gives an indication of how comprehensive the effect of the independent variable is, nevertheless also details which aspects of a grossly defined variable have been differentially affected. Cohen and Cohen (1975) cautioned that, when an investigator has a great pool of potential independent variables and very little theory to guide selection among them, he may be benefited by using stepwise regression. The authors remarked that in the use of stepwise regression analysis probably the most serious problem arises when a relatively large number of independent variables are used. Since the significant test of an independent variables contribution to R2 proceeds in ignorance of the great number of other such tests being performed at the same time for the other competing independent variables, there can a be very severe capitalization by chance. However, the authors recommended that if the researcher has selected both dependent and independent variable based on grounded theory, and the original independent variables (before stepwise selection) is not too large, in that case stepwise regression will work as a very useful tool in testing hypothesis. The chosen variables for this study are based on strong-grounded theories. Large numbers of independent variables were not used for this study.

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Table 4: Stepwise regression analysis

B Model 1 Fixed Asset Intensity -6.554

Std. Error 2.509

Beta -0.495

R2 0.245

Stepwise regression analysis shows participation of the institutional shareholders fails to enter the regression equation. Moreover, intensity of fixed assets alone can explain 24.5 % variance in the dependent variable, board size. However, the negative beta coefficient shows with the increase of fixed asset as a percentage of firm size, the size of board decreases. This finding conforms to the previous results found in both correlation and standardized regression. The other independent variables fail to enter the regression model and as such do not have any impact in determining the board size. Hypothesis analysis Hypothesis 1 is partially proved as only the intensity of fixed assets significantly influences the size of the board. The hypothesis2 proved to be false in this context.

Limitation of the Study

The sample size taken was small due to unavailability of IPO prospectus. More samples should have been taken to test the proposed hypotheses. Moreover, this study considers both manufacturing and service firms. This might have negative impact in the findings of the study.

Recommendations and Concluding Remarks

History seems to repeat itself in the last two decades, when corporate mishaps have endangered and exposed misfortunes for hundreds or thousands and even millions of employees, customers,

Determinants of Board Size at the Time of IPO

23

shareholders, vendors and other stakeholders (Boyd, 2003; Rezaee et al., 2003; Doost and Fishman, 2004). The news about these mishaps unfortunately often spread fast, overwhelming the news about success stories from many fellow corporations. The overall environment of Bangladesh does not resemble the same in U.S or the like. Therefore, the policy makers should remind that the code of corporate governance applied outside might not suit here well. Keeping this in mind and also considering several other factors like the influence of family run some stringent recommendations have been thought of in order to impose a direct control on the companies on behalf of the unaware shareholders, who lack apt understanding of company laws, regulations, and business strategy: If more than 15% of the shareholders raise an issue either in AGM or in any other day, it should be considered with considerable attention and be placed in front boards meeting. Resolution should be given within 15 days time. Any company, which wants to go public, must have a prior experience of at least 10 years with successful income history. It will make the stock market live. Govt. should impose monitoring activity on the audit firms so that they cannot be the consulting firm of the companies, whom they serve as external auditor. This should be undertaken keeping mind that there is a conflict of interest between the entity of auditor and consultant. SEC should enact strict guidelines regarding the composition of board. Board should not consist of members, who lack business experience of no less than 10 years. And the academic qualification of the board members should be brought in the prompt consideration.

Determinants of Board Size at the Time of IPO

24

Related entity of a company should not be given chance to buy stock of that company. For an instance, S. Alam Steels Limited owns 400,000 shares, S. Alam Cement Ltd 200,000, S. Alam Luxury Chair Coach Services Ltd owns 50,000 shares, S. Alam Hatchery Ltd owns 200,000 shares, and S. Alam Vegetable Oil Ltd owns 50,000 shares in S. Alam Cold Rolled Steels Ltd. This tendency has to be stopped. Like A bad workman quarrels with his tools, our investors always blame the stock market for depleting their investment. However, they dont understand that it is their shortfall of knowledge about stock market operation that matters. SEC should educate the investors through arranging seminars and workshops. These recommendations if implemented might lower the existing tide of IPO, however, Rome was not built in a day.

Paths forwards to further studies

Studies on IPO and board size at the time of IPO are not explored yet. But these studies carry a substantial weight in significance. Here, this study only concentrated, keeping under the very narrow sphere, in respect of lengths and breadth of Board Size at the time of IPO. There is a plenty of scope to study on determinants IPO and board size at the time of IPO. However, future study should consider the composition of board along with board size. Besides, future study should find out the mediating affect of both board size and composition in the actual stock market performance of the firms after IPO.

Determinants of Board Size at the Time of IPO

25

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Doost, R.K., Fishman, T. (2004), "Beyond Arthur Andersen: searching for answers", Managerial Auditing Journal, Vol. 19 No.5, pp.623-39. In Mardjono, A. (2005). A tale of corporate governance: lessons why firms fail. Managerial Auditing Journal, 20(3), 272-283. Dunne, Timothy; Roberts, Mark; and Samuelson, Larry. Patterns of Firm Entry and Exit in U.S. Manufacturing. RAND Journal of Economics 19, no. 4 (Winter 1988): 495-515. Evans, David S., 1987(a), The Relationship Between Firm Growth, Size, and Age: Estimates for 100 Manufacturing Industries, The Journal of Industrial Economics 35(4), 567581. Evans, David S., 1987(b), Tests of Alternative Theories of Firm Growth, The Journal of Political Economy 95(4), 657674. Fram, E. H. & Zoffer, H. J. (2005). Are American corporate directors still ignoring the signals? Corporate Governance, Volume 5 Number 1 2005 pp. 31-38 Grant, G. (2003), "The evolution of corporate governance and its impact on modern corporate America", Management Decision, Vol. 41 No.9, pp.923-34. Halla, I. P. (1999). A view of corporate governance and control In Finland. Managerial Auditing Journal, Volume 14 Number 3 1999 pp. 146-150 Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. American Economic Review, 6, 323329. Jovanovich, Boyan. Selection and the Evolution of Industry. Econometrica 50 (May 1982): 649-70 Johnson. J.L., Daily, C.M., & Ellstrand, A.E. (1996), Boards of directors: a review and research agenda. Journal of Management, Vol.22 No.3, pp.409-38 Leonard, Jonathan. In the Wrong Place at the Wrong Time: The Extent of Frictional and Structural Unemployment. In Unemployment and the Structure of the Labor Market, edited by Kevin Lang and Jonathan Leonard, pp. 141-63. New YorkL Blackwell, 1987.

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Mak, Y.T. (1996),Forecast disclosed by initial public offering firms in a low-litigation environment, Journal of Accounting and Public Policy, Vol. 12 No. 2, pp. 111-36. McRitchie, J. (1999). Corporate Governance Defined. http://corpgov.net/library/definitions.html. Mardjono, A. (2005). A tale of corporate governance: lessons why firms fail. Managerial Auditing, Journal, 20(3), 272-283. Organisation for Economic Co-operation and Development (OECD) (2004a), OECD Principles of Corporate Governance, OECD, Paris. Organisation for Economic Co-operation and Development (OECD) (2004b), Global Corporate Governance Guidelines, OECD, Paris. Organisation for Economic Co-operation and Development (OECD) (2002), Global Corporate Governance Forum, OECD, Paris. Pass, C. (2004), "Corporate governance and the role of non-executive directors in large UK companies: an empirical study", Corporate Governance, Vol. 4 No.2, pp.52-63. Robins, F. (2006). Corporate Governance after Sarbanes-Oxley: an Australian perspective. Corporate Governance, Volume 6 Number 1 2006 pp. 34-48. Rezaee, Z., Olibe, K.O., Minmier, G. (2003), "Improving corporate governance: the role of audit committee disclosures", Managerial Auditing Journal, Vol. 18 No.6/7, pp.530-7. Spira, L. (2001), "Enterprise and accountability: striking a balance", Management Decision, Vol. 39 No.9, pp.739-48. Taylor, D.W. (2000), "Facts, myths and monsters: understanding the principles of good governance", The International Journal of Public Sector Management, Vol. 13 No.2, pp.10824. Vinten, G. (2000), "Corporate governance: the need to know", Industrial and Commercial Training, Vol. 32 No.5, pp.173-8.

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Vinten, G. (2002), "The corporate governance lessons of Enron", Corporate Governance, Vol. 2 No.4, pp.4-9. Vinten, G. (1998), "Corporate governance: an international state-of-the-art", Managerial Auditing Journal, Vol. 13 No.7, pp.419-31. Walker, G., Fox, M. (2002), "Corporate governance reform in East Asia", Corporate Governance, Vol. 2 No.1, pp.4-9. Zandstra, G. (2002), "Enron, board governance and moral failings", Corporate Governance, Vol. 2 No.2, pp.16-19. In Mardjono, A. (2005). A tale of corporate governance: lessons why firms fail. Managerial Auditing Journal, 20(3), 272-283.

Appendix 1
SECURITIES AND EXCHANGE COMMISSION Jiban Bima Tower 10, Dilkusha (15th, 16th and 20th Floor) Dhaka-1000 NOTIFICATION Dated the 20th February, 2006 Whereas, the Securities and Exchange

No.

SEC/CMRRCD/2006-158/Admin/02-08:

Commission (herein after referred to as the Commission') deems it fit that the consent already accorded by the Commission, or deemed to have been accorded by it, or to be accorded by it in future, to the issue of capital by the companies listed with any stock exchange in Bangladesh, should be subject to certain further conditions, on comply or explain' basis, in order to enhance corporate governance in the interest of investors and the capital market; Now, therefore, in exercise of the power conferred by section 2CC of the Securities and Exchange Ordinance, 1969 (XVII of 1969), the Commission hereby supersedes its earlier Order No. SEC/CMRRCD/2006-158/Admin/02-06 dated the 9th January, 2006 and imposes the following further conditions to the consent already accorded by it, or deemed to have been accorded by it, or to be accorded by it in future, to the issue of capital by the companies listed with any stock exchange in Bangladesh: Provided, however, that these conditions are imposed on comply or explain' basis. The companies listed with any stock exchange in Bangladesh should comply with these conditions or shall explain the reasons for non-compliance in accordance with the condition No.5.

Determinants of Board Size before IPO: What role the Institutional Investors can play?

The Conditions:

1.0 BOARD OF DIRECTORS:

1.1 Board Size The number of the board members of the company should not be less than 5 (five) and more than 20 (twenty): Provided, however, that in the case of banks and non-bank financial institutions, insurance companies and statutory bodies for which separate primary regulators like Bangladesh Bank, Department of Insurance and so forth exist, the Board of those companies should be constituted as may be prescribed by such primary regulators in so far as those prescriptions are not inconsistent with the aforesaid condition. 1.2 Independent Directors All companies should encourage effective representation of independent directors on their Board of Directors so that the Board, as a group, includes core competencies considered relevant in the context of each company. For this purpose, the companies should comply with the following:(i) At least one tenth (1/10) of the total number of the company's board of directors, subject to a minimum of one, should be independent directors. Explanation: For the purpose of this clause independent director means a director who does not hold any share in the company or who holds less than one percent (1%) shares of the total paid-up shares of the company, who is not connected with the company's promoters or

Determinants of Board Size before IPO: What role the Institutional Investors can play?

directors or shareholder who holds one percent (1%) or more than one percent (1%) shares of the total paid-up shares of the company on the basis of family relationship; who does not have any other relationship, whether pecuniary or otherwise, with the company or its subsidiary/associated companies, who is not a member, director or officer of any stock exchange, and who is not a shareholder, director or officer of any member of stock exchange or an intermediary of the capital market. (ii) The independent director(s) should be appointed by the elected directors. 1.3 Chairman of the Board and Chief Executive The positions of the Chairman of the Board and the Chief Executive Officer of the companies should preferably be filled by different individuals. The Chairman of the company should be elected from among the directors of the company. The Board of Directors should clearly define respective roles and responsibilities of the Chairman and the Chief Executive Officer. 1.4 The Director's Report to Shareholders The directors of the companies should include following additional statements in the Directors' Report prepared under section 184 of the Companies Act, 1994:(a) The financial statements prepared by the management of the issuer company present fairly its state of affairs, the result of its operations, cash flows, and changes in equity. (b) Proper books of account of the issuer company have been maintained. (c) Appropriate accounting policies have been consistently applied in preparation of the financial statements and that the accounting estimates are based on reasonable and prudent judgment.

Determinants of Board Size before IPO: What role the Institutional Investors can play?

(d) International Accounting Standards, as applicable in Bangladesh, have been followed in preparation of the financial statements and any departure therefrom has been adequately disclosed. (e) The system of internal control is sound in design and has been effectively implemented and monitored. (f) There are no significant doubts upon the issuer company's ability to continue as a going concern. If the issuer company is not considered to be a going concern, the fact along with reasons thereof should be disclosed. (g) Significant deviations from last year in operating results of the issuer company should be highlighted and reasons thereof should be explained. (h) Key operating and financial data of at least preceding three years should be summarised. (i) If the issuer company has not declared dividend (cash or stock) for the year, the reasons thereof should be given. (j) The number of Board meetings held during the year and attendance by each director should be disclosed. (k) The pattern of shareholding should be reported to disclose the aggregate number of shares (along with name wise details where stated below) held by:(i) Parent/Subsidiary/Associated companies and other related parties (name wise details); (ii) Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer, Head of

Determinants of Board Size before IPO: What role the Institutional Investors can play?

Internal Audit and their spouses and minor children (name wise details); (iii) Executives; and (iv) Shareholders holding ten percent (10%) or more voting interest in the company (name wise details). Explanation: For the purpose of this clause, the expression executive means top five salaried employees of the company, other than the Directors, Chief Executive Officer, Company Secretary, Chief Financial Officer and Head of Internal Audit.

2.00 CHIEF FINANCIAL OFFICER (CFO), HEAD OF INTERNAL AUDIT, AND COMPANY SECRETARY

2.1 Appoinment The company should appoint a Chief Financial Officer (CFO), a Head of Internal Audit and a Company Secretary. The Board of Directors should clearly define respective roles, responsibilities and duties of the CFO, the Head of Internal Audit and the Company Secretary.

2.2 Requirement to Attend Board Meetings The CFO and the Company Secretary of the companies should attend meetings of the Board of Directors, provided that the CFO and/or the Company Secretary should not attend such part of a meeting of the Board of Directors which involves consideration of an agenda item relating to the CFO and/or the Company Secretary.

Determinants of Board Size before IPO: What role the Institutional Investors can play?

3.00 AUDIT COMMITTEE: The company should have an Audit Committee as a sub-committee of the Board of Directors. The Audit Committee should assist the Board of Directors in ensuring that the financial statements reflect true and fair view of the state of affairs of the company and in ensuring a good monitoring system within the business. The Audit Committee shall be responsible to the Board of Directors. The duties of the Audit Committee should be clearly set forth in writing.

3.1 Constitution of Audit Committee (i) The Audit Committee should be composed of at least 3 (three) members. (ii) The Board of Directors should appoint members of the Audit Committee who should be directors of the company and should include at least one independent director. (iii) When the term of service of the Committee members expires or there is any circumstance causing any Committee member to be unable to hold office until expiration of the term of service, thus making the number of the Committee members to be lower than the prescribed number of 3 (three) persons, the Board of Directors should appoint the new Committee member(s) to fill up the vacancy(ies) immediately or not later than 1 (one) month from the date of vacancy(ies) in the Committee to ensure continuity of the performance of work of the Audit Committee.

3.2 Chairman of the Audit Committee

Determinants of Board Size before IPO: What role the Institutional Investors can play?

(i) The Board of Directors should select 1 (one) member of the Audit Committee to be Chairman of the Audit Committee. (ii) The Chairman of the audit committee should have a professional qualification or knowledge, understanding and experience in accounting or finance.

3.3 Reporting of the Audit Committee

3.3.1 Reporting to the Board of Directors (i) The Audit Committee should report on its activities to the Board of Directors. (ii) The Audit Committee should immediately report to the Board of Directors on the following findings, if any:a) Report on conflicts of interests; (b) Suspected or presumed fraud or irregularity or material defect in the internal control system; (c) Suspected infringement of laws, including securities related laws, rules and and (d) Any other matter which should be disclosed to the Board of Directors immediately. regulations;

3.3.2 Reporting to the Authorities If the Audit Committee has reported to the Board of Directors about anything which has material impact on the financial condition and results of operation and has discussed with the Board of Directors and the management that any rectification is necessary and if the Audit Committee

Determinants of Board Size before IPO: What role the Institutional Investors can play?

finds that such rectification has been unreasonably ignored, the Audit Committee should report such finding to the Commission, upon reporting of such matters to the Board of Directors for three times or completion of a period of 9 (nine) months from the date of first reporting to the Board of Directors, whichever is earlier.

3.4 Reporting to the Shareholders and General Investors Report on activities carried out by the Audit Committee, including any report made to the Board of Directors under condition 3.3.1 (ii) above during the year, should be signed by the Chairman of the Audit Committee and disclosed in the annual report of the issuer company.

4.00 EXTERNAL / STATUTORY AUDITORS The issuer company should not engage its external/statutory auditors to perform the following services of the company; namely:(i) Appraisal or valuation services or fairness opinions; (ii) Financial information systems design and implementation; (iii) Book-keeping or other services related to the accounting records or financial statements; (iv) Broker-dealer services; (v) Actuarial services; (vi) Internal audit services; and (vii) Any other service that the Audit Committee determines.

5.00 REPORTING THE COMPLI ANCE IN THE DIRECTOR'S REPORT

Determinants of Board Size before IPO: What role the Institutional Investors can play?

The directors of the company shall state, in accordance with the annexure attached, in the directors' report whether the company has complied with these conditions. Status of compliance with the conditions imposed by the Commission's Notification No. SEC/CMRRCD/2006-158/Admin/02-08 dated 20th February,2006issued under section 2CC of the Securities and Exchange Ordinance, 1969: (Report Under Condition No 5.00) Compliance Status Condition No Title (Put in the appropriate column) Complied 1.1 1.2 (i) 1.2(ii) 1.3 1.4 (a) 1.4(b) 1.4(c) 1.4(d) 1.4(e) 1.4(f) 1.4(g) 1.4(h) 1.4(i) 1.4(j) 1.4(k) 2.1 2.2 Not Complied

Explanation for non-compliance with the condition

Determinants of Board Size before IPO: What role the Institutional Investors can play?

3.0 3.1 (i) 3.1 (ii) 3.1 (iii) 3.2 (i) 3.2 (ii) 3.3.1(i) 3.3.1(ii)(a) 3.3.1(ii)(b) 3.3.1(ii)(c) 3.3.1(ii)(d) 3.3.2 3.4 4.00 (i) 4.00 (ii) 4.00 (iii) 4.00 (iv) 4.00 (v) 4.00 (vi) 4.00 (vii) By order of the Securities and Exchange Commission Dr. Mirza Azizul Islam Chairman

Appendix 2
Firm Age Till IPO 5 10 32 10 2 No. of Direc tors 8 6 6 8 3 No. of Shares Issued as IPO 1050000 1159500 1159500 3177985 6000000 Existing outstandi ng shares 700000 1824159 22029440 12711940 19027463 Instituti onal Shareho lders 0 445148 2202937 0 1271192 2 4028285

SL

Company Name

Firm Size Fixed Asset

Sales

Cash Flow

1 2 3 4 5

Asia Pacific General Insurance Bangladesh Industrial Finance Company Limited (BIFC) Berger Desco Golden Son Limited Industrial Promotion And Development Company of Bangladesh Limited (IPDC) Islamic Finance And Investment Ltd Jamuna Bank LankaBangla Finance Ltd Meghna Life Insurance Nitol Insurance Northern Gen Insurance Pragati Life Insurance Ltd

71,766,586.00 1,912,009,343.00 1,298,049,000.00 10,304,546,121.00 265,600,654.00

9,410,700.00 37,716,166.00 354,111,000.00 4,453,694,248.00 211,128,204.00

15,544,328.00 144,258,700.00 922,341,000.00 1,333,600,000.00 26,731,693.00

9,27,902.98 11,070,542.00 209,237,000.00 2,334,369,135.00 640,553.00

11,946,466,857.00

97,225,305.00

1,119,424,534.00

4,030,238,684.00

28

1390000

4780140

4780134

7 8 9 10 11 12 13

1,017,541,774.00 12,682,788,917.00 1,613,556,722.00 717,767,114.00 157,225,789.00 292,809,551.17 241,065,713.00

5,974,538.00 105,581,835.00 44,331,948.00 63,083,476.00 11,276,171.00 13,906,021.00 13,836,414.00

240,422,042.00 791,296,998.00 235,799,128.00 890,259,248.00 3,658,105.00 35,201,022.00 212,707,206.00

102,541,251.00 2,281,840,000.00 235,190,568.00 395,661,111.00 92,051,669.00 99,395,413.25 142,347,922.00

4.5 4 8 9 6 10 6

7 11 9 13 5 14 5

1000000 4290000 9000000 450000 900000 900000 450000

147000 4290000 2600000 300000 600000 600000 300000

0 0 1800000 0 0 0 0

Determinants of Board Size at the Time of IPO

14 15 16 17 18 19 20 21 22 23

Premier Bank Limited Premier Leasing International Ltd Prime Finance And Investment Limited Prime Islami Life Insurance Limited Progressive Life Insurance S Alam Steels Shahjalal Islami Bank Sonar Bangla Insurance Summit Power Ltd United Capital Limited

25,062,498,625.00 1,227,570,579.00 2,348,930,650.00 271,067,715.00 330,444,474.00 4,469,176,519.00 17,387,784,711.00 70,144,999.00 979,946,757.00 1,335,702,066.00

160,081,195.00 5,179,530.00 7,190,135.00 22,420,291.00 23,238,616.00 1,569,299,290.00 90,260,511.00 13,502,956.00 792,847,453.00 2,919,523.00

1,677,651,875.00 161,251,474.00 336,161,931.00 444,662,695.00 210,595,216.00 1,402,122,877.00 528,262,324.00 835,850,000.00 483,963,029.00 132,266,918.00

1,769,499,238.00 296,930,000.00 34,364,220.00 177,485,367.00 73,476,293.00 38,617,501.00 4,224,983,592.00 74,651,034.00 15,960,184.00 137,570,430.00

7 .75 4 9.58 5.58 5.83 5 6 6 8.25 8

10 10 10 12 9 3 7 13 5 10

8449950 1005000 500000 450000 450000 1200000 9358250 900000 2000000 7500000

6 ,814,497 1227828 1800000 30000000 300000 1000000 9358250 600000 4500000 19313072

0 0 1713180 0 0 900000 477762 0 4499700 6867964

Appendix 3

Correlations
Correlations fixed_asset_ intensity -.187 .394 23 -.049 .825 23 -.495 * .016 23 1 . 23 -.174 .428 23 .409 .053 23 cashflow_to_ sales .074 .737 23 -.049 .824 23 -.184 .401 23 -.174 .428 23 1 . 23 -.191 .383 23 institution_ share .046 .836 23 .581 ** .004 23 -.375 .078 23 .409 .053 23 -.191 .383 23 1 . 23

firm_size

Pearson Correlation Sig. (2-tailed) N

firm_size 1 . 23 .109 .621 23 .028 .898 23 -.187 .394 23 .074 .737 23 .046 .836 23

firm_age .109 .621 23 1 . 23 -.077 .727 23 -.049 .825 23 -.049 .824 23 .581 ** .004 23

board_size .028 .898 23 -.077 .727 23 1 . 23 .495 * .016 23 -.184 .401 23 -.375 .078 23

firm_age

Pearson Correlation Sig. (2-tailed) N

board_size

Pearson Correlation Sig. (2-tailed) N

fixed_asset_intensity

Pearson Correlation Sig. (2-tailed) N

cashflow_to_sales

Pearson Correlation Sig. (2-tailed) N

institution_share

Pearson Correlation Sig. (2-tailed) N

**. Correlation is significant at the 0.01 level (2-tailed). *. Correlation is significant at the 0.05 level (2-tailed).

Appendix 4 Regression
b Variables Entered/Removed

Model 1

Variables Entered fixed_ asset_ intensity, firm_age, cashflow_ to_sales, firm_size, institution_ a share

Variables Removed

Method

Enter

a. All requested variables entered. b. Dependent Variable: board_size

Model Summary Model 1 R R Square .612a .374 Adjusted R Square .190 Std. Error of the Estimate 2.812

a. Predictors: (Constant), fixed_asset_intensity, firm_age, cashflow_to_sales, firm_size, institution_share

ANOVAb Model 1 Sum of Squares 80.443 134.426 214.870 df 5 17 22 Mean Square 16.089 7.907 F 2.035 Sig. .125a

Regression Residual Total

a. Predictors: (Constant), fixed_asset_intensity, firm_age, cashflow_to_sales, firm_ size, institution_share b. Dependent Variable: board_size

Determinants of Board Size at the Time of IPO

Coefficientsa Unstandardized Coefficients B Std. Error 10.087 1.178 .026 .113 .000 .000 -.182 .116 -2.114 2.065 -5.717 3.086 Standardized Coefficients Beta .058 -.023 -.310 -.290 -.432

Model 1

(Constant) firm_age firm_size cashflow_to_sales institution_share fixed_asset_intensity

t 8.561 .226 -.114 -1.571 -1.024 -1.852

Sig. .000 .824 .911 .135 .320 .081

a. Dependent Variable: board_size

Regression
a Variables Entered/Removed

Model 1

Variables Entered

Variables Removed

fixed_ asset_ intensity

Method Stepwise (Criteria: Probabilit y-ofF-to-enter <= .050, Probabilit y-ofF-to-remo ve >= . 100).

a. Dependent Variable: board_size

Model Summary Model 1 R R Square .495a .245 Adjusted R Square .209 Std. Error of the Estimate 2.779

a. Predictors: (Constant), fixed_asset_intensity

ANOVAb Model 1 Sum of Squares 52.689 162.181 214.870 df 1 21 22 Mean Square 52.689 7.723 F 6.822 Sig. .016a

Regression Residual Total

a. Predictors: (Constant), fixed_asset_intensity b. Dependent Variable: board_size

Determinants of Board Size at the Time of IPO

Coefficientsa Unstandardized Coefficients B Std. Error 9.299 .693 -6.554 2.509 Standardized Coefficients Beta -.495

Model 1

(Constant) fixed_asset_intensity

t 13.410 -2.612

Sig. .000 .016

a. Dependent Variable: board_size

Excluded Variablesb Collinearity Statistics Tolerance .998 .965 .970 .833

Model 1

firm_age firm_size cashflow_to_sales institution_share

Beta In -.101a -.067a -.278a -.207a

t -.524 -.337 -1.487 -.996

Sig. .606 .739 .153 .331

Partial Correlation -.116 -.075 -.315 -.217

a. Predictors in the Model: (Constant), fixed_asset_intensity b. Dependent Variable: board_size