Factors influencing the choice between founder versus non-founder CEOs for IPO firms

Jain, Bharat A.; Tabak, Filiz

doi:10.1016/j.jbusvent.2005.11.001

Cited by 92 publications

(101 citation statements)

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“…capital markets (Jain and Tabak, 2008). For all of the above reasons, founder-CEOs are less likely to be perceived as legitimate leaders of their firms when they become public in the U.S.,…”

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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“…In the context of the initial public off ering company, around one-third to one-half of fl otations go public with founders at the helm, and receive handsome off er prices compared with non-founder valuations ( Certo et al, 2001b ;Nelson, 2003 ). Th us, considering the role of the founder at the point of the fl otation has value, particularly as founders have considerable power due to large ownership stakes ( Jain and Tabak, 2008 ) and extensive skills.…”

Section: Founders and Boardsmentioning

confidence: 99%

“…Some question whether the founder is the best person managerially to lead a fi rm into the public-listing phase of its life cycle. Founders may not have the inclination to develop new skills to suit the challenges that come with a fl otation ( Jain and Tabak, 2008 ). Oft en changes in leadership are required ( Greiner, 1972 ).…”

Section: Founders and Boardsmentioning

confidence: 99%

“…While numerous studies have investigated the determinants of the going public decision (e.g. Booth and Smith, 1986 ;Jain and Kini, 1999 ) and post-issue performance (e.g. Beatty and Ritter, 1986 ;Brav, Geczy, and Gompers, 2000 ;Espenlaub and Tonks, 1998 ;Michaely and Shaw, 1994 ), there is relatively little research on the related but equally important issue of what factors infl uence the corporate governance mechanism of a fi rm at IPO stage, and how the specifi c characteristics of this mechanism such as board composition, executive incentives, and ownership interests of private equity investors may aff ect the IPO's performance.…”

Section: Introductionmentioning

confidence: 99%

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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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“…Although empirical results are rather mixed, it is widely assumed that outsiders have a stronger incentive to monitor the top management team than insiders (see Deutsch/Ross, 2003). Thus, board composition is taken as an endogenous variable, analyzing the factors that shape the ratio of insiders in the board, like past performance of the CEO which increases his bargaining power (Jain/Tabak, 2008).…”

Section: Boards Of Directors In Entrepreneurial and Newly Listed Firmsmentioning

confidence: 99%

Corporate governance in newly listed companies

Audretsch

Lehmann

2013

Handbook of Research on IPOs

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Corporate governance in newly listed companiesTopics in corporate governance have been around in the literature almost for a century, most of the theoretical and empirical work has focused on the large and public company. While this research has improved our understanding of how large corporations are governed, corporate governance in small and medium sized enterprises and in particular in entrepreneurial and newly listed firms has rarely been studied. This essay offers a reflective overview of corporate governance mechanisms in entrepreneurial and newly listed companies and of why and how governance mechanisms differ from those in large and publicly traded corporations. In contrast to the traditional approach in corporate governance, we do not rely on the agency perspective as a work-horse to analyze governance problems. Instead we focus on either market or institutional based mechanisms in corporate governance. This opens the view on governance problems in newly listed companies outside the narrow view of either an agency or free-market perspective. Instead, the following study tries to bridge the different perspectives on corporate governance. From the broad set of mechanisms in corporate governance discussed in the literature, we focus only on a small subset which is prevalent in newly listed companies like the product and capital market, the market for corporate control, boards of directors and capital structures.-work in progress - UO-Working-Paper Series 03-13 AbstractTopics in corporate governance have been around in the literature almost for a century, most of the theoretical and empirical work has focused on the large and public company. While this research has improved our understanding of how large corporations are governed, corporate governance in small and medium sized enterprises and in particular in entrepreneurial and newly listed firms has rarely been studied. This essay offers a reflective overview of corporate governance mechanisms in entrepreneurial and newly listed companies and of why and how governance mechanisms differ from those in large and publicly traded corporations. In contrast to the traditional approach in corporate governance, we do not rely on the agency perspective as a work-horse to analyze governance problems. Instead we focus on either market or institutional based mechanisms in corporate governance. This opens the view on governance problems in newly listed companies outside the narrow v...

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Factors influencing the choice between founder versus non-founder CEOs for IPO firms

Cited by 92 publications

References 59 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

Corporate governance in newly listed companies

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