Governance, Ownership Structure, and Performance of Entrepreneurial IPOs in AIM Companies

Abstract

Manuscript Type Empirical Research Question/Issue The study investigates the impact of venture capital (VC) ownership on corporate governance characteristics in entrepreneurial companies listed on the UK's Alternative Investment Market (AIM). In particular, the paper examines the impact of venture capital funds on the firm's governance structure post‐IPO and the dynamic inter‐relationship between corporate governance (CG), venture capital ownership and financial performance. Research Findings/Insights Using hand collected data from a sample of 271 entrepreneurial companies admitted to AIM during the period 2000–2007, we measure and track the corporate governance characteristics by constructing a CGAIM50 index. Our findings suggest a high level of VC ownership and its reputation leads to better corporate governance in our sample of entrepreneurial Initial Public Offering (IPO) companies. We also find a positive and significant relationship between corporate governance characteristics and financial performance, which suggests that outside shareholders such as VCs bring managerial know‐how and hence help improve IPO companies' performance. Theoretical/Academic Implications The study is the first to examine the CG characteristics of entrepreneurial (fast growth) companies on the AIM using a unique index. The inter‐relationship between venture capital ownership structure, corporate governance, and financial performance is modeled using the system GMM estimator of dynamic panel model in addition to the 3SLS methodology. Practitioner/Policy Implications The study offers practical implications for regulatory authorities and investors, as it highlights that venture capital funds investing in entrepreneurial companies on the AIM have a positive impact on both corporate governance and company performance, which improves after IPO admission, and also on subsequent performance.

Female Directors and Firm Performance: Evidence from UK Listed Firms

“…This report supports previous studies, in which larger firms tend to have more non-executive directors (Denis and Sarin 1999) and entrenched CEOs (Hazarika et al 2012), which leads to their low levels of governance index (Farag et al 2014).…”

The social, environmental and ethical performance of Chinese companies: Evidence from the Shanghai Stock Exchange

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“…following Farag et al (2014). 15 Although the 3SLS method is asymptotically more efficient, it is also more vulnerable to specification errors as compared to 2SLS.…”

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