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VC board representation and performance of US IPOs

Chahine, Salim and Goergen, Marc 2011. VC board representation and performance of US IPOs. Journal of Business Finance & Accounting 38 (3-4) , pp. 413-445. 10.1111/j.1468-5957.2011.02240.x

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Abstract

This paper studies the impact of five dimensions of venture capitalist (VC) power on the likelihood of the board representation of VCs in their portfolio firms at the initial public offering (IPO) as well as the effect of the latter on IPO performance. The dimensions of VC power are based on Finkelstein's (1992) four dimensions of power which are ownership power, structural power (i.e., the VC's rank within the firm's financial hierarchy), expert power (i.e., VC industry specialization), and prestige power (i.e., the number of IPOs the VC has been involved with so far). We add controlling power (i.e., how pivotal the VC is to the voted decision) to these four dimensions. We find that all five dimensions of power have a significantly positive impact on the likelihood of VC board membership. While controlling for the possible endogeneity of the latter, underpricing and the IPO premium are higher if there is VC board membership, which is consistent with both the grandstanding and management support hypotheses. Our results suggest that VCs improve IPO performance and that they do not just maintain a strong presence in better performing companies after the IPO.

Item Type: Article
Date Type: Publication
Status: Published
Schools: Business (Including Economics)
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HG Finance
Uncontrolled Keywords: Underpricing ; IPO premium ; Venture capital ; Voting power ; Board membership ; Chief executive officers
Publisher: Blackwell Publishing
ISSN: 0306-686X
Last Modified: 04 Jun 2017 03:31
URI: http://orca-mwe.cf.ac.uk/id/eprint/22266

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