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The best of both worlds : Can founder-CEOs overcome the rich versus king dilemma after IPO?

Author

Listed:
  • Asma Fattoum

    (CBS - Copenhagen Business School [Copenhagen])

  • Frédéric Delmar

    (EM - EMLyon Business School)

  • Mike Wright

    (Imperial College Business School)

Abstract

Research Summary: To prevent loss of control post‐IPO, founder‐CEOs can implement control‐enhancing mechanisms disconnecting ownership from voting rights. However, this decision places them in a rich versus king dilemma. If they choose to implement such mechanisms and secure the king position, they risk losing money at IPO. If they choose not to implement control‐enhancing mechanisms and adopt the rich position they risk losing control over the firm. We investigate theoretically and empirically the outcomes of this dilemma in a multi‐period setting (at IPO and post‐IPO). We found that the majority of founder‐CEOs who choose the king option recover initial wealth loss, and hence, they can reconcile the rich and king paths in the long‐run post‐IPO.Managerial Summary: Founder‐CEOs often use control‐enhancing mechanisms (CEMs), such dual class shares, pyramid control structures, and pact agreements, to maintain control over their IPO firms. In this study, we investigate the effects of these CEMs on firm value at IPO and post‐IPO using a unique hand‐collected dataset comprising all founder‐CEO led firms that went public on French regulated markets between January 1992 and December 2010. We found that most founder‐CEOs who use multiple CEMs leave considerable amounts of money on the table at IPO date but they are able to recover their initial loss 5 years post‐IPO. This result suggests that an IPO may constitute a valuable financing alternative even for founder‐CEOs who value control.

Suggested Citation

  • Asma Fattoum & Frédéric Delmar & Mike Wright, 2018. "The best of both worlds : Can founder-CEOs overcome the rich versus king dilemma after IPO?," Post-Print hal-02312249, HAL.
    • Handle: RePEc:hal:journl:hal-02312249
    DOI: 10.1002/smj.2960
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    Cited by:

    1. HONJO Yuji & IKEDA Yuya & KURIHARA Koki, 2024. "Founder-CEO Resistance and Ambition: An empirical analysis of firm survival in Japanese junior stock markets," Discussion papers 24060, Research Institute of Economy, Trade and Industry (RIETI).
    2. Delmar, Frédéric & Wallin, Jonas & Nofal, Ahmed Maged, 2022. "Modeling new-firm growth and survival with panel data using event magnitude regression," Journal of Business Venturing, Elsevier, vol. 37(5).
    3. Michael A. Abebe & Keshab Acharya, 2022. "Founder CEOs and corporate environmental violations: Evidence from S&P 1500 firms," Business Strategy and the Environment, Wiley Blackwell, vol. 31(3), pages 1204-1219, March.
    4. Paola Rovelli & Vincenzo Butticè, 2020. "On the organizational design of entrepreneurial ventures: the configurations of the entrepreneurial team," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 47(2), pages 243-269, June.
    5. Alice Rossi & Tom Vanacker & Silvio Vismara, 2023. "Unsuccessful Equity Crowdfunding Offerings and the Persistence in Equity Fundraising of Family Business Start-Ups," Entrepreneurship Theory and Practice, , vol. 47(4), pages 1327-1355, July.

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