Alliance portfolios and shareholder value in post-IPO firms: The moderating roles of portfolio structure and firm-level uncertainty

Using longitudinal data for initial public offering (IPO) firms, we examine the role played by structural differences between different types of alliance portfolios in the relationship between IPO firm alliance portfolios and shareholder returns. We show that because of the different signals they send to the capital market, different types of alliance portfolios affect IPO firm performance differently. Namely, financial markets seem to reward firms whose alliance portfolio is diversified across different types of alliances (a portfolio high in functional diversity), but not those who align their alliance partners into multiple functional points in the value chain (a portfolio high in vertical scope). We also examine the signaling role of alliance portfolios under different IPO firm uncertainty conditions. We note that uncertainty about the IPO firm is not limited to pre-IPO quality uncertainty. Investors also face transition uncertainty, post-IPO uncertainty about the ability of the firm to adapt to the new managerial challenges it faces and succeed post-IPO. We find that these two types of uncertainties moderate alliance portfolio effects in different ways. The beneficial effects of alliance portfolios in mitigating liabilities of newness is of greater importance for firms associated with higher quality uncertainty and for those associated with lower transition uncertainty.     

Multinational Corporate Power,Influence and Responsibility in Global Supply Chains

This study examines the influence of underwriter–auditor relationship (UAR) on pre-initial public offering (IPO) earnings management. Using a sample of Chinese to-be-listed firms, we find that a close UAR, as reflected in repeated collaborations between an underwriter and an audit firm in IPOs, is positively associated with pre-IPO earnings management. This association is more pronounced for firms with politically connected auditors/underwriters, firms with less reputable auditors/underwriters, firms located in provinces with weak legal environment, firms to-be-listed on boards with lax listing requirements, and firms whose auditors are with low industry specialization, and legal liability exposures. We provide further evidence that UAR is associated with greater likelihood of irregular activities in post-IPO period and poorer post-IPO financial performance. To the extent that we control for alternative explanations and potential endogeneity, our results suggest that the collusion incentive is likely to drive repeated collaborations between underwriters and auditors in the Chinese IPO market. Our findings provide interesting implications for auditors, investors, and regulators seeking to understand the Chinese IPO market.     

The effect of trademark breadth on IPO valuation and post-IPO performance: an empirical investigation of 1510 European IPOs

Trademarks differ in breadth and can cover a wide range of categories of goods and services. We draw on real options theory and argue that greater trademark breadth constitutes a valuable real option that is associated with higher firm valuation and performance. We analyze a sample of 1510 firms that went public in Europe between 2002 and 2015 and find a positive effect of trademark breadth on initial public offering (IPO) valuation and post-IPO performance. We implement a contingency analysis to contrast real options and signaling theory and find stronger support for the real options perspective.     

TMT Departures and Post‐IPO Outside Director Additions: Implications for Young IPO Firms’ Survival and Performance

We draw on resource‐based logic to argue that relatively stable TMTs and boards are beneficial for young IPO firms because of the need to maintain and develop valuable firm‐specific capabilities and psychological attachment of pre‐IPO TMTs. Using panel data from 272 young IPO firms, we find that pre‐IPO TMT member exits negatively affect young IPO firms’ survival and performance. This negative effect is greater when more post‐IPO outside directors are added. We also find that the above interaction is positively and negatively associated with survival and performance when TMT ownership declines substantially and when firms have a founder CEO, respectively.     

Early teams: The impact of team demography on VC financing and going public

This study investigates how top management team (TMT) demographic characteristics affect firm outcomes for young high technology firms in Silicon Valley. We study how team composition and turnover shape an entrepreneurial firm's ability to attract venture capital and its ability to successfully complete an initial public offering. We find that broad access to information by virtue of having top management team members that have worked for many different employers (diverse prior company affiliations) and have diverse prior experiences (functional diversity) tend to be associated with positive outcomes. In addition, entrants to and founder exits from the TMT increase the likelihood that a firm achieves an IPO. TMT exits, in turn, reduce the likelihood of achieving an IPO. Results also suggest that prior human capital experience is consistently associated with positive firm outcomes. These findings suggest that team experiences, composition and turnover are all important for bringing new insights to the firm and are associated with the likelihood that an entrepreneurial firm will succeed.     

The role of internationalization on the IPO performance of service firms: Examination of initial returns,long-run returns,and survivability

This study examines the effect of internationalization on the initial and long-run IPO performance of service firms. The study discusses that pre-IPO internationalization of service firms contributes to the explanation of long-discussed IPO underpricing phenomenon, and underperformance of IPOs in the long-run. Sample of the study includes 1822 IPO issues conducted by US service firms between 1980 and 2009. Findings of the study suggest that international service firms leave less money on table in their IPOs compared to domestic service firms by providing significantly lower first day returns to their investors on their first day of public trading. Moreover, our findings provide evidence that 3-year cumulative abnormal returns and 3-year buy-and-hold returns of international service firms are significantly higher than domestic service firms, and international service firms outperform domestic service firms in both operating return on assets and operating cash flows in the post-IPO period. Lastly, the study documents that survival rate of service firms subsequent to an IPO issue increases with pre-IPO internationalization.     

The impact of firmspecific capabilities on the amount of capital raised in an initial public offering: Evidence from the biotechnology industry

Going “public” has a magical sound to most entrepreneurial managers. By going public the firm increases its legitimacy in the business community, improves access to debt financing, and creates a means of exit for major shareholders. However, by far the most important reason for going public is to infuse a significant amount of investment capital into the firm. It is well documented that small businesses frequently fail because of insufficient funding and heavy debt loads. Issuing an initial public offering (IPO) allows entrepreneurial firms to overcome these pitfalls. Clearly, if access to capital is the major goal of going public, then the success of an offering is measured by the amount of capital raised by the firm. This study presents a model of the total amount of capital raised by a firm through an IPO. The explanatory variables include several indicators of the scientific capabilities of the firm including the location of the firm, the quality of the research staff, the number of products under development, the number of patents held by the firm, and the firm's prior spending on research and development (R&D). The model is empirically tested on a sample of 92 biotechnology IPOs. The results provide strong support for the hypothesized positive relationship between the total amount of capital raised by a firm's IPO and the scientific capabilities of the firm.Our results have important implications for entrepreneurs. First, an entrepreneur needs to develop and send credible signals indicating the value of the firm's intangible assets to the market. Second, the market values as deep a product pipeline as possible given a firm's resource constraints. Third, choice of location is a key strategic decision that should not be overlooked. Fourth, the market values firm-specific capabilities and will increase the capital it is willing to invest in a firm accordingly. Finally, the amount of capital a firm raises in its IPO can be influenced by entrepreneurial managers' strategic decisions.     

Is venture capital worth it? Effects on firm performance and founder returns

This paper extends research on venture capital (VC) finance by studying its effects on a venture's performance and on its founders' returns beyond an initial public offering (IPO). A “founder performance” construct, defined as a founder's financial and nonfinancial returns, is proposed and used to measure and compare returns to founders with returns to investors and firm performance. In general, venture characteristics pre-IPO and venture performance post-IPO were not significantly different when comparing ventures with and without VC backing. Only when VC backing is very high, do pre-IPO resources and funding improve significantly. However, higher levels of resource endowments did not seem to affect post-IPO performance for the venture or its investors. On the other hand, founders resorting to VC funding before taking their company public generated significantly less wealth for themselves and were less likely to remain as CEOs of their ventures after the IPO. Results suggest that founders motivated primarily by wealth creation and those motivated by remaining in control of their ventures should, in both instances, minimize VC backing when taking their ventures public. The finding that founder performance differs from venture and investor performance calls for future research to explore potential conflicts of interest that may arise from the double role of founders as principals and agents.     

Founder management and the market for corporate control for IPO firms: The moderating effect of the power structure of the firm

This study draws on agency and stewardship theory to evaluate the relationship between alternative governance regimes (founder versus non-founder CEO) adopted at the time of going public on post-IPO economic outcomes in the market for corporate control. We find that the presence of founder CEOs reduces the likelihood of post-IPO change of control but enhances target IPO firm wealth by increasing acquisition premiums. Additionally, we examine whether measures of CEO power over the board moderate the relationship between founder management and target IPO firm wealth. Our results suggest that CEO duality is the most effective instrument of CEO power available to founder CEOs to positively influence target firm wealth. Further, we find that while founder CEOs utilize power derived from CEO duality to increase acquisition premiums, non-founder CEOs use board leadership power to expropriate shareholder wealth.     

The path-to-profitability of Internet IPO firms

Extant empirical evidence indicates that the proportion of firms going public prior to achieving profitability has been increasing over time. This phenomenon is largely driven by an increase in the proportion of technology firms going public. Since there is considerable uncertainty regarding the long-term economic viability of these firms at the time of going public, identifying factors that influence their ability to attain key post-IPO milestones such as achieving profitability represents an important area of research. We employ a theoretical framework built around agency and signaling considerations to identify factors that influence the probability and timing of post-IPO profitability of Internet IPO firms. We estimate Cox Proportional Hazards models to test whether factors identified by our theoretical framework significantly impact the probability of post-IPO profitability as a function of time. We find that the probability of post-IPO profitability increases with pre-IPO investor demand and change in ownership at the IPO of the top officers and directors. On the other hand, the probability of post-IPO profitability decreases with the venture capital participation, proportion of outsiders on the board, and pre-market valuation uncertainty.     

Firm value and its relation to equity retention levels, forecast earnings disclosures and underpricing in initial public offerings in Hong Kong

This study helps extend our understanding of the factors underlying the valuation of initial public offering (IPO) firms within the Hong Kong market context. The issues investigated are all the more important given Hong Kong's unique position in China, where free and unfettered capital markets entice global institutions wishing to partake in the ‘China investment story’. We find support for three signals of initial firm value: the fraction of equity retained by pre-listing stakeholders [Leland, H., & Pyle, D. (1977). Information asymmetries, financial structure and financial intermediation. Journal of Finance, 32, 371–387], the voluntary disclosure of a prospectus earnings forecast [Trueman, B. (1986). Why do managers voluntarily release earnings forecasts. Journal of Accounting and Economics, 53–71] and the amount of funds ‘given-up’ through IPO underpricing [see Allen, F., & Faulhaber, G. R. (1989). Signalling by underpricing in the IPO market. Journal of Financial Economics, 23, 303–323; Grinblatt, M., & Hwang, C. Y. (1989). Signalling and the pricing of new issues. Journal of Finance, 44, 393–420; Welch, I. (1989). Seasoned offerings, imitation costs, and the underpricing of initial public offerings. Journal of Finance, 44, 421–449]. Moreover, the signals appear robust to different firm valuation measures (i.e., market-to-book and Tobin's Q) and to the inclusion/exclusion of PRC state-owned H-share issuers.A number of other important contributions also emerge. First, we develop a new measurement form for the pre-listing shareholders’ equity retention level (α) by decomposing it to reflect differential effects from primary and (‘voluntary’ and ‘involuntary’) secondary offers. We further show that after accounting for listing rule effects—which partially drive the choice of the retained equity level in the Hong Kong setting—the equity retention-firm value relation is seen with much greater clarity.In a later stage of analysis we deepen the signal-firm value findings by relating the three signals to post-IPO earnings. We note a positive association between the fraction of equity retained by pre-listing owners and earnings growth. However, this association weakens somewhat beyond the first two accounting year-ends post-listing. Significantly, earnings appreciation appears markedly weaker for issuers going to market with a secondary offer component within their overall IPO. Finally, consistent with Jain and Kini's [1994. The post-operating performance of IPO firms. Journal of Finance, 49(5), 1699–1726] US evidence, IPO underpricing appears to have little or no association with post-listing earnings.     

Does corporate hedging affect firm valuation? Evidence from the IPO market

Focusing on the IPO market, we examine the influence of corporate hedging on firm valuation. Consistent with the argument that hedging reduces information asymmetry, we find that hedging IPO firms are associated with lower price revisions and underwriting fees. More important, hedging reduces IPO underpricing, especially for informationally opaque firms. This provides strong evidence that corporate hedging increases firm valuation. We also show that corporate hedging lowers aftermarket idiosyncratic volatility, enhances aftermarket liquidity, and improves the long-term performance of IPO firms. We use both an instrumental variable approach and a regulation change on derivatives supply to address endogeneity concerns.     

The aftermarket performance of small firm initial public offerings

The dream of many entrepreneurs is to some day take his or her growing small firm public and, to thereby become the CEO of a publicly-traded corporation. Currently, entrepreneurs are continuing to utilize initial public offerings (IPOs), as a viable source of venture financing. IPOs also represent a viable mechanism for harvesting venture capital and entrepreneurial investments. The touted entrepreneurial benefits of taking a company public include the abilities to borrow additional funds; return to the public equity market; negotiate mergers without depleting cash; the potential for enhanced personal wealth and so forth. Investors in small firm public equity issues are often motivated by the potential for discovering another Apple Computer, or perhaps an IBM at the “ground floor.”This study empirically examines the aftermarket returns of small publicly-held firms that have issued initial public offerings. Aftermarket returns refers to stock returns immediately after a stock begins trading. The study specifically examines two questions. First, “Is there a positive risk-return relationship for small firm aftermarket returns, where higher firm risk will generate higher aftermarket return?” Second, “Will aftermarket returns show on industry effect, where certain industries will automatically generate higher returns?” Answers to these questions will affect the strategic financial alternatives available to entrepreneurs both before and after going public and, will also affect the decisions of investors interested in financing small public corporations.The research findings indicate that entrepreneurs planning to take younger firms public will probably not have available to them numerous subsequent financial alternatives, utilizing corporate stock, if the true aftermarket performance of their stock is taken into consideration. Likewise, investors in small firm public issues may also be disappointed in the aftermarket performance of younger firms. A positive risk-return relationship, where age was a proxy measure of risk, did not exist. This was true even though the initially quoted returns of these same younger firms may have been substantial. On the other hand, the aftermarket performance of older firms is typically favorable.Finally, the study suggests that neither entrepreneurs nor investors should bet solely on a particular industry categorization to “carry” their aftermarket stock performance. While certain industries indicated significant positive initial returns, aftermarket returns based on industry classification were generally not statistically significant. Investors should therefore always exercise firmspecific due diligence and research before investing in small firm public equity issues, since the variance of their aftermarket market returns tends to be large.     

Initial Public Offering Investor Valuations: An Examination of Top Management Team Prestige and Environmental Uncertainty

Relying on one of the more notable entrepreneurial settings, an initial public offering (IPO), this article extends prior work on top management team (TMT) characteristics. We examine whether or not prestigious TMTs at the time of an IPO enhance organizational legitimacy and thereby provide a signal to potential investors. Because an IPO represents an entrepreneurial context characterized by high levels of uncertainty, we also consider the impact of environmental uncertainty on the TMT prestige/investor valuation relationship. We find that both an element of TMT prestige and environmental uncertainty influence investor valuations. However, we also find that the influence of prestige does not assuage investors when analyzing IPOs in different environmental conditions.     

Board member age,stock seasoning and the evolution of capital structure in Chinese firms

This study examines the evolution of capital structure for Chinese stock issuers over an eleven-year period, stretching three years pre- to eight years post-listing. The paper scrutinizes the role of a key demographic in this seasoning process: The age of board officers. The present study’s key postulate is that board age proxies for a firm’s growth options. While issuer indebtedness exhibits little to no connection with other board properties, a strong inverse association exists with officer age. Moreover, entities with older boards experience notably smaller contractions in leverage on listing, as well as more subdued upswings post-IPO. Results are congruent with older board firms possessing fewer growth options and raising less capital at IPO. Additionally, study findings suggest that the Global Financial Crisis delayed Chinese firms’ re-leveraging adjustments post-IPO. Finally, changes to leverage at IPO, and in the years thereafter, appear similar for both hot- and cold-market issuers.     

The entrepreneurial control imperative: A case history of Steria (1969–2000)

Steria, a leading French information systems and services company, was created with the vision that it would be owned by employees of all ranks. Founded in 1969 with US$80,000 initial capital and eight employees, Steria achieved its initial public offering (IPO) in 1999, and in May 2000 had sales of US$400 million, 3000 employees, and a market value of US$800 million, with a price/earnings ratio of 55. Steria's strategy was driven by the entrepreneurial control imperative. While the founder entrepreneur gradually relinquished control in favor of new employees, Steria was wary, almost paranoid, in ensuring its independence from takeovers by other companies. We discuss the four stages of growth of Steria, separated by three internal crises. Two of these crises were caused by the revolt of dissatisfied employees, the “barons,” and were resolved through the statesmanship of the founder entrepreneur. We analyze the key factors that contributed to the success of Steria, and we discuss whether the strategy of maintaining entrepreneurial control was beneficial to Steria and whether this strategy is still valid for the post-IPO “New Steria.”     

Venture capital financing,strategic alliances,and the initial public offerings of Internet startups

This study examines how Internet startups' venture capital financing and strategic alliances affect these startups' ability to acquire the resources necessary for growth. Using the initial public offering (IPO) event as an early-stage measure for Internet startups' performance and controlling for the IPO market environment, this study found that three factors positively influenced a startup's time to IPO: the better the reputations of participating venture capital firms and strategic alliance partners were, the more money a startup raised, and the larger was the size of a startup's network of strategic alliances.     

Signaling in science-based IPOs: The combined effect of affiliation with prestigious universities,underwriters, and venture capitalists

This paper studies the combined effect of affiliation with prestigious universities, underwriters, and venture capitalists on the valuation of biotech ventures at IPO and their post-IPO performance. We argue that affiliation to a prestigious university provides the affiliated firm with a quality signal in the scientific domain. The pure quality signaling effect of the affiliation is isolated from the substantive benefits it provides by performing a difference-in-difference approach based on the scientific reputation of scientists in firms' upper echelons. The signal is stronger the weaker is the scientific reputation of scientists of the focal IPO-firm and is additive to those provided by prestigious venture capitalists and underwriters. Results for a sample of 254 European biotech ventures that went through an IPO between 1990 and 2009 confirm our predictions.     

Accumulating human capital: Corporate innovation and firm value

We empirically document that industries that are more R&D intensive exhibit disproportionately greater innovation quantity and better innovation quality in economies with more human capital. Firm-level evidence confirms that innovation is an important channel through which firm responds to labor market conditions. Further analyses show that in economies with greater human capital, firms better able to innovate exhibit larger increase in labor productivity and capital–labor ratio, an effect driven by deceases in employment and increase in intangible capital investment. By facilitating the adjustment in input mix and capital structure, human capital accumulation allows firms with high innovation ability to enhance firm equity value and improve firm performance.     

沪港通的绩效增长与反向选择效应——兼论实现高质量增长的资本市场改革路径

本文从金融服务实体企业角度探讨了沪港通对“成分股”绩效增长是否存在激励效应和治理效应,以及沪港通的成分股“选择机制”是否存在“反向选择效应”,并综合运用线性调整、逆概率加权、内生处理效应、异质性处理效应等估计方法,得出如下结论:(1)“沪港通”政策的实施有助于提升成分股企业的绩效水平;(2)沪港通持股水平高更有助于提升企业绩效水平,表明沪港通持股存在治理效应;(3)政策实施过程存在潜在的福利损失——那些在“沪港通”中受益水平较低的企业更大概率地被选入成分股,从而降低了开放政策所能达到的最优福利水平。这表明以“试点”方式进行资本市场开放,会产生因“反向选择”而导致的福利损失。因此,需要加强改革的“强度”和“广度”,适时提升“沪港通”交易份额,并扩大沪港通成分股范围,以提高微观企业增长水平及增长质量。