Date of Award

Winter 2006

Document Type

Dissertation

Degree Name

Doctor of Business Administration (DBA)

Department

Management

First Advisor

Mark Kroll

Abstract

In this study, I examine the impact of changes in post-IPO corporate governance on firm performance. Changes in corporate governance affect firm performance in various ways. Some theories such as agency and resource dependence theories predict that fast-paced change in post-IPO corporate governance will enhance firm performance. Other theories such as the resource-based view offer the opposite prediction that slowpaced change is more beneficial for firm performance. I, therefore, develop competing hypotheses regarding the impact of change in post-IPO corporate governance on firm performance.

IPO firms have unique characteristics. They are often small, young firms. As a matter of fact, they suffer from the liabilities of newness and smallness. Unlike established large firms, TO firms often have limited resources and lack credibility to acquire needed resources. IPO firms also share other typical characteristics. Normally, top managers have extraordinarily important roles in IPO firms. They represent an important source of competitive advantage for IPO firms. Another typical characteristic of IPO firms is that their corporate governance is informal and weak, especially prior to the IPO.

After going public, firms have to change their corporate governance to meet the requirements of the Securities and Exchange Commission (SEC) and expectations of the investment community. Major changes in corporate governance include changes in managerial ownership, changes in board composition, and changes in top management team (TMT) membership. To understand the impact of these changes on firm performance, I adopt various theoretical perspectives. Except for change in managerial ownership, agency and resource dependence theories argue that rapid change in post-IPO corporate governance will help to reduce agency costs and increase firm legitimacy, thus enhancing firm performance. On the contrary, the resource-based view predicts that slow change in post-IPO corporate governance helps to maintain and leverage TMT psychological commitment and social and human capital, which help create competitive advantages and enhance firm performance.

I used archival data from Hoovers Online, Edgar, S&P Compustat , and CRSP to test whether slow or rapid change in post-IPO corporate governance is more beneficial for firm performance. I also tested the moderating effect of changes in managerial ownership, the presence of a founder CEO, and technology on the relationship between change in post-IPO corporate governance and firm performance. Empirical results provide some support for the case of slow change in post-IPO corporate governance. Changes in managerial ownership and the presence of a founder CEO somewhat moderate the relationship between changes in post-IPO corporate governance and firm performance.

The major theoretical implication is that for young, entrepreneurial firms, the need for supporting original top managers should be viewed as at least as important as the need for protecting investors. The important implication for policy makers, investors and managers is that change in post-IPO corporate governance should be implemented gradually to maintain and leverage original top managers' psychological commitment, and human and social capital for the benefit of the firm. The study suggests that future research should provide more insights into the relationship between investors and managers in the face of a transformational change such as IPOs. The major limitation of this study involves the possibility of survivorship bias. (Abstract shortened by UMI.)

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