Executive incentive schemes in initial public offerings: the effects of multiple-agency conflicts and corporate governance

Allcock, Deborah

doi:10.1108/sd.2010.05626kad.008

Cited by 20 publications

(29 citation statements)

References 6 publications

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“…In their study of executive compensation in U.K. IPO firms, Allcock and Filatotchev (2009) found that a large proportion of firms did not have any executive compensation schemes at all, and less than half of the firms that had executive share option plans had some form of performance criteria attached to them. In the U.K. institutional context, executive share options often contradict prevailing culture, contingencies, and coalitions of interest (Buck and Shahrim, 2005).…”

Section: Founder-ceosmentioning

confidence: 99%

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Moore

Bell

Filatotchev

et al. 2012

Strategic Management Journal

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While product market choices have been central to strategy formulation for firms in the past, the integration of financial markets makes the choice of capital markets an equally important strategic decision. We advance a comparative institutional perspective to explain capital market choice by firms making an IPO in a foreign market. We find that internal governance characteristics (founder-CEO, executive incentives, and board independence) and external network characteristics (prestigious underwriters, degree of venture capitalist syndication, and board interlocks) are significant predictors of foreign capital market choice by foreign IPO firms. Our results suggest foreign IPO firms select a host market where the firms' governance characteristics and third party affiliations fit the host market's institutional environment.3

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Section: Founder-ceosmentioning

confidence: 99%

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Moore

Bell

Filatotchev

et al. 2012

Strategic Management Journal

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“…Furthermore, future investors might prefer companies with more independent boards ( Gompers, 1995 ). Th ere is also the impact that venture capitalist involvement might have on the choice of share options ( Allcock and Filatotchev, 2010 ) and off er pricing levels ( Fried et al, 1998 ). If venture capitalists are driving the timing of the IPO, then they may off er options at a low off er price in order to compensate the CEO for his support for the IPO timing.…”

Section: Share Options Granted At the Point Of The Ipo Flotationmentioning

confidence: 99%

Corporate Governance in IPOs

Filatotchev

Allcock

2013

Oxford Handbooks Online

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corporate governance in ipos 423 investors ( Bruton et al., 2010 ). An entrenched founder-CEO may also try to retain a leadership position even when his/her skills become inadequate to new challenges faced by the fi rm ( Nelson, 2003 ). As a result of these information asymmetries, there are potential agency costs when a fi rm experiences an IPO since managers may not reveal actions within the fi rm or do not take certain actions that maximize the fi rm benefi t ( Sanders and Boivie, 2004 ).At IPO investors recognize the potential impact of the agency costs associated with information asymmetries, and they will therefore anticipate potential agency costs and price-protect themselves, thus leading to an IPO discount. Prior research approximates this discount by a lower industry-adjusted off er price/book or price/sales ratios (e.g. Chahine and Filatotchev, 2008 ), while others associate it with greater underpricing, measured by the diff erence between the fi rst-day-trading closing price and the off er price (e.g. Daily et al., 2003 ), suggesting that the aft ermarket price provides a good proxy for an intrinsic value of the IPO fi rm. Some researchers, however, argue that the uncertainties and information asymmetries cannot be resolved on the fi rst day of trading, and suggest using longer-term proxies for the stock market discount ( Aggarwal and Rivoli, 1990 ; Loughran et al., 1994 ).However, the IPO team may use corporate governance-related signals that allow potential investors to better understand the true value of the fi rm and reduce risks of agency problems, which in turn can improve the IPO fi rm's performance ( Sanders and Boivie, 2004 ). Corporate governance studies in the IPO context have recognized a wide range of potential "good governance signals" that include board characteristics, executive incentives, and the governance roles of early stage investors. Th ese governance factors play a dual role in addressing two types of agency confl icts in an IPO fi rm. First, they may convey important signals about the "quality" of IPO fi rm, and this may reduce the extent of adverse selection problems. For example, by attracting prestigious and experienced independent board members, an IPO fi rm can diff erentiate itself from other "poor quality" IPOs. At the same time, these independent directors may improve the extent and quality of monitoring, which imposes constraints on managerial discretion and reduces moral hazard-type agency confl icts. Likewise, venture capitalist may play important certifi cation and monitoring roles that aff ect both types of agency confl icts. By carefully selecting their investment targets, they certify the quality of fi rms they bring to the stock market. In addition, venture capitalists (VCs) oft en retain their ownership aft er the fl otation, and their objectives and post-issue monitoring incentives may be aligned with public market investors ( Bruton et al., 2010 ).A central premise of this research is that corporate governance factors may be important signals to investors w...

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“…White et al, 2004). The IPO process results in dilution of existing ownership in favour of retail and institutional investors (Allcock and Filatotchev, 2010). As part of this, formerly powerful actors either exit the firm completely or have their influence seriously diminished.…”

Section: Ipos and Governancementioning

confidence: 99%

Principal Costs in Initial Public Offerings

Dalziel

White

Arthurs

2011

J Management Studies

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The initial public offering (IPO) of a new venture's stock often results in significant changes to the firm's ownership structure. Because firm owners (principals) often have heterogeneous interests, conflicts can arise among the principals. While governance mechanisms are often effective in limiting agency problems, we suggest that principals can also attempt to use governance mechanisms to their own advantage in IPO settings. Specifically, when principal-principal conflict exists, powerful principals may exert control via governance mechanisms to pursue their own interests in ways that create inefficiencies in the form of 'principal costs'.

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Executive incentive schemes in initial public offerings: the effects of multiple-agency conflicts and corporate governance

Cited by 20 publications

References 6 publications

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Foreign IPO capital market choice: Understanding the institutional fit of corporate governance

Corporate Governance in IPOs

Principal Costs in Initial Public Offerings

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