Effects of Social Capital and Power on Surviving Transformational Change: The Case of Initial Public Offerings.

Abstract

We examined how social capital and the power of venture capitalists and founderCEOs affect IPO firm survival. Using data from 218 U.S. initial public offerings conducted in 1992, we found that average management team tenure and an IPO deal's network embeddedness decreased the likelihood of failure during a firm's first five years as a public entity. Founder-CEO presence at the time of an IPO interacted with CEO ownership to decrease the likelihood of failure, and CEO ownership and venture capitalist ownership concentration also decreased that likelihood.

Institutional Investor Portfolio Stability and Post-IPO Firm Survival: A Contingency Approach

“…Accordingly, developing an understanding of factors that impact the failure rates of newly public firms represents a topic of interest to entrepreneurs, stockholders, and society in general. Fischer and Pollock (2004) posit that the high failure rates typical of the IPO transition stem from the fact that newly public firms face a variety of challenges as they adapt to a new institutional environment. For instance, moving from the private to public arena may require a change of organizational goals and performance objectives.…”

“…Indeed, public investors may be less tolerant of performance volatility and possess shorter time horizons than private investors (Price Waterhouse, 1995). This suggests that managers of newly public firms need to adapt to the objectives and challenges presented by public shareholders (Fischer & Pollock, 2004). Agency theory suggests that, newly public firms face greater potential for agency problems than pre-IPO firm because of the separation between ownership and control results from the issuance of additional equity share (Jensen & Meckling, 1976).…”

Roles of Board of Directors in Organizational Ambidexterity

“…Directors can develop richer relationships with other directors and executives in the organization through the interactions with one another. These interactions increase familiarity among directors and help to develop mutual understanding of one another's personalities and behavioral styles as well as their skills and expertise (Fischer & Pollock, 2004). This understanding can facilitate collaboration among them and make the decision making process smoother, which leads to the integration of ideas that help organizations select better strategies (Datta, 2011;Westphal & Bednar, 2005).…”

“…With longer tenure, directors can develop internal social capital (Fischer & Pollock, 2004). Directors can develop richer relationships with other directors and executives in the organization through the interactions with one another.…”

“…Average tenure of directors: Following previous research (Fischer & Pollock, 2004;Kor & Sundaramurthy, 2009), directors' average number of years of service on the board in the current organization was used to measure organization-specific human and social capital.…”