IDEAS home Printed from https://ideas.repec.org/a/sae/entthe/v33y2009i4p845-865.html
   My bibliography  Save this article

Firm–Specific Human Capital and Governance in IPO Firms: Addressing Agency and Resource Dependence Concerns

Author

Listed:
  • Jonathan D. Arthurs
  • Lowell W. Busenitz
  • Robert E. Hoskisson
  • Richard A. Johnson

Abstract

Entrepreneurs with firm–specific human capital represent both a potential source of competitive advantage and a threat to appropriate the rents that are ultimately generated by a new venture. This situation presents interesting agency and resource dependence challenges. While potential investors in these ventures will want assurances that their interests are protected, they will also want to ensure that these key entrepreneurs remain with the organization. Using agency theory and resource dependence theory, we examine the types of governance mechanisms that are implemented in firms going through an initial public offering comparing those ventures which indicate a dependence on these critical entrepreneurs versus those that do not. Our analysis reveals that ventures exhibiting dependence on key entrepreneurs are associated with higher insider and outsider ownership by the board, greater start–up experience by the board, greater use of contingent compensation, and greater use of involuntary departure agreements.

Suggested Citation

  • Jonathan D. Arthurs & Lowell W. Busenitz & Robert E. Hoskisson & Richard A. Johnson, 2009. "Firm–Specific Human Capital and Governance in IPO Firms: Addressing Agency and Resource Dependence Concerns," Entrepreneurship Theory and Practice, , vol. 33(4), pages 845-865, July.
    • Handle: RePEc:sae:entthe:v:33:y:2009:i:4:p:845-865
    DOI: 10.1111/j.1540-6520.2009.00329.x
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1111/j.1540-6520.2009.00329.x
    Download Restriction: no
    File URL: https://libkey.io/10.1111/j.1540-6520.2009.00329.x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. repec:bla:jfinan:v:43:y:1988:i:3:p:567-91 is not listed on IDEAS
    2. Laura Casares Field & Gordon Hanka, 2001. "The Expiration of IPO Share Lockups," Journal of Finance, American Finance Association, vol. 56(2), pages 471-500, April.
    3. Shleifer, Andrei & Vishny, Robert W, 1997. "A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-783, June.
    4. Amy J. Hillman & Albert A. Cannella & Ramona L. Paetzold, 2000. "The Resource Dependence Role of Corporate Directors: Strategic Adaptation of Board Composition in Response to Environmental Change," Journal of Management Studies, Wiley Blackwell, vol. 37(2), pages 235-256, March.
    5. Alvarez, Sharon A. & Barney, Jay B., 2004. "Organizing rent generation and appropriation: toward a theory of the entrepreneurial firm," Journal of Business Venturing, Elsevier, vol. 19(5), pages 621-635, September.
    6. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    7. Daniel J. Bradley & Bradford D. Jordan & Ha-Chin Yi & Ivan C. Roten, 2001. "Venture Capital And Ipo Lockup Expiration: An Empirical Analysis," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 24(4), pages 465-493, December.
    8. Rosenstein, Joseph & Bruno, Albert V. & Bygrave, William D. & Taylor, Natalie T., 1993. "The CEO, venture capitalists, and the board," Journal of Business Venturing, Elsevier, vol. 8(2), pages 99-113, March.
    9. Amit, Raphael & Brander, James & Zott, Christoph, 1998. "Why do venture capital firms exist? theory and canadian evidence," Journal of Business Venturing, Elsevier, vol. 13(6), pages 441-466, November.
    10. Linda A. Cyr & Diane E. Johnson & Theresa M. Welbourne, 2000. "Human Resources in Initial Public Offering Firms: Do Venture Capitalists Make a Difference?," Entrepreneurship Theory and Practice, , vol. 25(1), pages 77-92, October.
    11. S. Trevis Certo & Catherine M. Daily & Dan R. Dalton, 2001. "Signaling Firm Value through Board Structure: An Investigation of Initial Public Offerings," Entrepreneurship Theory and Practice, , vol. 26(2), pages 33-50, December.
    12. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
    13. Gorman, Michael & Sahlman, William A., 1989. "What do venture capitalists do?," Journal of Business Venturing, Elsevier, vol. 4(4), pages 231-248, July.
    14. Charles W. L. Hill & Scott A. Snell, 1988. "External control, corporate strategy, and firm performance in research‐intensive industries," Strategic Management Journal, Wiley Blackwell, vol. 9(6), pages 577-590, November.
    15. Dean A. Shepherd & Andrew Zacharakis, 2001. "Speed to Initial Public Offering of VC-Backed Companies," Entrepreneurship Theory and Practice, , vol. 25(3), pages 59-70, April.
    16. Jonas Gabrielsson & Morten Huse, 2004. "Context, Behavior, and Evolution: Challenges in Research on Boards and Governance," International Studies of Management & Organization, Taylor & Francis Journals, vol. 34(2), pages 11-36, January.
    17. Fama, Eugene F & Jensen, Michael C, 1983. "Separation of Ownership and Control," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 301-325, June.
    18. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October.
    19. Hean Tat Keh & Maw Der Foo & Boon Chong Lim, 2002. "Opportunity Evaluation under Risky Conditions: The Cognitive Processes of Entrepreneurs," Entrepreneurship Theory and Practice, , vol. 27(2), pages 125-148, April.
    20. Teresa Nelson, 2003. "The persistence of founder influence: management, ownership, and performance effects at initial public offering," Strategic Management Journal, Wiley Blackwell, vol. 24(8), pages 707-724, August.
    21. Russell W. Coff, 1999. "When Competitive Advantage Doesn't Lead to Performance: The Resource-Based View and Stakeholder Bargaining Power," Organization Science, INFORMS, vol. 10(2), pages 119-133, April.
    22. Kenneth J. Rediker & Anju Seth, 1995. "Boards of directors and substitution effects of alternative governance mechanisms," Strategic Management Journal, Wiley Blackwell, vol. 16(2), pages 85-99.
    23. Megginson, William L & Weiss, Kathleen A, 1991. "Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July.
    24. Busenitz, Lowell W. & Barney, Jay B., 1997. "Differences between entrepreneurs and managers in large organizations: Biases and heuristics in strategic decision-making," Journal of Business Venturing, Elsevier, vol. 12(1), pages 9-30, January.
    25. Joshua Lerner, 1994. "The Syndication of Venture Capital Investments," Financial Management, Financial Management Association, vol. 23(3), Fall.
    26. William S. Schulze & Michael H. Lubatkin & Richard N. Dino & Ann K. Buchholtz, 2001. "Agency Relationships in Family Firms: Theory and Evidence," Organization Science, INFORMS, vol. 12(2), pages 99-116, April.
    27. Baker, Ted & Miner, Anne S. & Eesley, Dale T., 2003. "Improvising firms: bricolage, account giving and improvisational competencies in the founding process," Research Policy, Elsevier, vol. 32(2), pages 255-276, February.
    28. Russell W. Coff & Peggy M. Lee, 2003. "Insider trading as a vehicle to appropriate rent from R&D," Strategic Management Journal, Wiley Blackwell, vol. 24(2), pages 183-190, February.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Grichnik, Dietmar & Brinckmann, Jan & Singh, Luv & Manigart, Sophie, 2014. "Beyond environmental scarcity: Human and social capital as driving forces of bootstrapping activities," Journal of Business Venturing, Elsevier, vol. 29(2), pages 310-326.
    2. Shima Amini & Sofia Johan & Eilnaz Kashefi Pour & Abdulkadir Mohamed, 2023. "Employee Welfare, Social Capital, and IPO Firm Survival," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2174-2204, November.
    3. Purkayastha, Saptarshi & Veliyath, Rajaram & George, Rejie, 2019. "The roles of family ownership and family management in the governance of agency conflicts," Journal of Business Research, Elsevier, vol. 98(C), pages 50-64.
    4. Erik E. Lehmann & Manuel T. Schwerdtfeger, 2016. "Evaluation of IPO-firm takeovers: an event study," Small Business Economics, Springer, vol. 47(4), pages 921-938, December.
    5. Erik Lehmann & Thorsten Braun & Sebastian Krispin, 2012. "Entrepreneurial human capital, complementary assets, and takeover probability," The Journal of Technology Transfer, Springer, vol. 37(5), pages 589-608, October.
    6. Liu, Kun & Arthurs, Jonathan, 2019. "How does dependence on key employees matter for initial public offerings of U.S. high-tech firms?," Journal of Business Research, Elsevier, vol. 102(C), pages 74-82.
    7. Knockaert, Mirjam & Bjornali, Ekaterina S. & Erikson, Truls, 2015. "Joining forces: Top management team and board chair characteristics as antecedents of board service involvement," Journal of Business Venturing, Elsevier, vol. 30(3), pages 420-435.
    8. Walters, Bruce A. & Le, Son A. & Kroll, Mark, 2015. "Post-IPO governance and top management team rent generation and appropriation," Journal of Business Research, Elsevier, vol. 68(1), pages 47-55.
    9. Ozbek, O. Volkan, 2021. "Market Performance of Spun-Off Subsidiaries: Effects of Board Independence and Directors’ Industry Experience," American Business Review, Pompea College of Business, University of New Haven, vol. 24(1), pages 249-267, May.
    10. Michele Meoli & Stefano Paleari & Silvio Vismara, 2013. "Completing the technology transfer process: M&As of science-based IPOs," Small Business Economics, Springer, vol. 40(2), pages 227-248, February.
    11. Chemmanur, Thomas J. & Gupta, Manish & Simonyan, Karen & Tehranian, Hassan, 2021. "The relationship between venture capital backing and the top management team quality of firms going public and implications for initial public offerings," Journal of Business Venturing, Elsevier, vol. 36(6).
    12. Braun, Thorsten V. & Lehmann, Erik E. & Schwerdtfeger, Manuel T., 2011. "The stock market evaluation of IPO-firm takeovers," UO Working Papers 01-11, University of Augsburg, Chair of Management and Organization.
    13. Kretinin, Andrey & Anokhin, Sergey & Wincent, Joakim, 2020. "Exploring the antecedents of franchise internationalization," Journal of Business Research, Elsevier, vol. 112(C), pages 422-430.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Johannes Wallmeroth & Peter Wirtz & Alexander Peter Groh, 2017. "Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review," Working Papers hal-01527999, HAL.
    2. Douglas Cumming & Sofia Johan, 2007. "Advice and monitoring in venture finance," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(1), pages 3-43, March.
    3. Denis A. Grégoire & Martin X. Noël & Richard Déry & Jean–Pierre Béchard, 2006. "Is There Conceptual Convergence in Entrepreneurship Research? A Co–Citation Analysis of Frontiers of Entrepreneurship Research, 1981–2004," Entrepreneurship Theory and Practice, , vol. 30(3), pages 333-373, May.
    4. Balboa, Marina & Marti, Jose, 2007. "Factors that determine the reputation of private equity managers in developing markets," Journal of Business Venturing, Elsevier, vol. 22(4), pages 453-480, July.
    5. Arthurs, Jonathan D. & Busenitz, Lowell W., 2006. "Dynamic capabilities and venture performance: The effects of venture capitalists," Journal of Business Venturing, Elsevier, vol. 21(2), pages 195-215, March.
    6. Mikko Jääskeläinen & Markku Maula & Tuukka Seppä, 2006. "Allocation of Attention to Portfolio Companies and the Performance of Venture Capital Firms," Entrepreneurship Theory and Practice, , vol. 30(2), pages 185-206, March.
    7. Yasemin Kor & Joseph Mahoney & Sharon Watson, 2008. "The effects of demand, competitive, and technological uncertainty on board monitoring and institutional ownership of IPO firms," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 12(3), pages 239-259, August.
    8. Annalisa Croce & José Martí, 2017. "Financial constraints in family firms and the role of venture capital," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 119-144, March.
    9. Douglas Cumming & Sofia Johan, 2006. "Provincial preferences in private equity," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(4), pages 369-398, December.
    10. Baker, Malcolm & Gompers, Paul A, 2003. "The Determinants of Board Structure at the Initial Public Offering," Journal of Law and Economics, University of Chicago Press, vol. 46(2), pages 569-598, October.
    11. Haizhi Wang & Robert Wuebker & Shu Han & Michael Ensley, 2012. "Strategic alliances by venture capital backed firms: an empirical examination," Small Business Economics, Springer, vol. 38(2), pages 179-196, February.
    12. Jens Burchardt & Ulrich Hommel & Dzidziso Samuel Kamuriwo & Carolina Billitteri, 2016. "Venture Capital Contracting in Theory and Practice: Implications for Entrepreneurship Research," Entrepreneurship Theory and Practice, , vol. 40(1), pages 25-48, January.
    13. Annalisa Croce & Jose Martí & Carmelo Reverte, 2019. "The role of private versus governmental venture capital in fostering job creation during the crisis," Small Business Economics, Springer, vol. 53(4), pages 879-900, December.
    14. Jean-Etienne de Bettignies, 2008. "Financing the Entrepreneurial Venture," Management Science, INFORMS, vol. 54(1), pages 151-166, January.
    15. Dominik van Aaken & Maximilian Göbel & Daniel Meindl, 2020. "Monitor or Advise? How Family Involvement Affects Supervisory Board Roles in Family Firms," Schmalenbach Business Review, Springer;Schmalenbach-Gesellschaft, vol. 72(2), pages 193-224, April.
    16. Chen, Hung-Kun & Liang, Woan-lih, 2016. "Do venture capitalists improve the operating performance of IPOs?," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 291-304.
    17. David Williams & W. Duncan & Peter Ginter, 2010. "Testing a model of signals in the IPO offer process," Small Business Economics, Springer, vol. 34(4), pages 445-463, May.
    18. Croce, Annalisa & Martí, José & Murtinu, Samuele, 2013. "The impact of venture capital on the productivity growth of European entrepreneurial firms: ‘Screening’ or ‘value added’ effect?," Journal of Business Venturing, Elsevier, vol. 28(4), pages 489-510.
    19. Jain, Bharat A. & Jayaraman, Narayanan & Kini, Omesh, 2008. "The path-to-profitability of Internet IPO firms," Journal of Business Venturing, Elsevier, vol. 23(2), pages 165-194, March.
    20. Catherine M. Daily & S. Trevis Certo & Dan R. Dalton & Rungpen Roengpitya, 2003. "IPO Underpricing: A Meta–Analysis and Research Synthesis," Entrepreneurship Theory and Practice, , vol. 27(3), pages 271-295, July.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:entthe:v:33:y:2009:i:4:p:845-865. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.