Date of Award
Doctor of Business Administration (DBA)
Mark J. Kroll
The purpose of this study is to assess the post-IPO performance structures of young entrepreneurial firms. Based on the propositions of the signaling model, I propose that the firm IPO performance is a determining factor in post-IPO changes in ownership structures. Furthermore, I contend that the new owners that replace the original ones in young IPO firms will be prone to request changes in corporate governance mechanisms such as top management team membership and the boards of directors based on the need to have their own agents looking after their interests as recommended by the agency theory. Following these alterations in corporate governance mechanisms, I propose such changes will be detrimental for the performance of the young entrepreneurial firms as these firms, due to their uniqueness, are still in great need of the tacit knowledge provided by their original decision makers. Finally, moderating effects of the environmental dimensions of dynamism, complexity and munificence are hypothesized to impact the relationship between the rate of change on corporate governance mechanisms and firm performance.
In the literature review section I review studies that explore why firms go public, the main areas of IPO research, the importance of executives and directors in young entrepreneurial firms, the theories related to IPO performance and its measures, the uniqueness of these firms and the potential impact of environment on decision making routines. I develop a model that explains the interrelated relationships I propose to be present and the corresponding hypotheses. Using the SDC database, I identified 185 young entrepreneurial firms that went public in 2001, 2002, 2003, 2004 and 2005. Based on the previous literature, the criterion I used for being a young entrepreneurial firm was the founding date. Firms that were founded in 1991 and forward were included in this study. Using the Edgar Database, Compustat Research Insight, CRSP, Disclosures, and the company websites, I compiled a database that consists of stock performance, operating performance, and the governance data for these companies for the five years following their IPOs.
The results revealed that one of the IPO performance measures, underpricing, impacts subsequent changes in blockholder ownership in young entrepreneurial firms. Following the changes in ownership structure, the new owners tend to request changes in one of the corporate governance mechanisms I considered, boards of directors, but not top management teams (TMT). I also observed a negative impact for changes in boards of directors on subsequent firm performance when accounting-based measures are considered; this was not the case with TMTs. Furthermore, the results also showed that two of the environmental dimensions exacerbated the relationship between the changes in corporate governance mechanisms and firm performance. These results implied that young entrepreneurial firms operating in complex and less munificent environments are in more need of the inputs provided by their original directors. The study ends with a discussion of the theoretical and managerial implications of the findings together with the specification of possible future extensions and limitations.
Atinc, Guclu M., "" (2011). Dissertation. 382.