Management Quality, Venture Capital Backing, and Initial Public Offerings

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2012-05-04

Summary:

Editor’s Note: The following post comes to us from Thomas Chemmanur, Professor of Finance at Boston College; Karen Simonyan of the Department of Finance at Suffolk University; and Hassan Tehranian, Professor of Finance at Boston College.

In the paper, Management Quality, Venture Capital Backing, and Initial Public Offerings, which was recently made publicly available on SSRN, we use hand-collected data on the quality and reputation of the management teams of a large sample of 3,240 entrepreneurial firms going public during 1993-2004 to conduct the first large-sample study of the relationship between VC-backing and management quality and the effect of these two variables on a firm’s IPO characteristics and valuation, post-IPO financial policies, and post-IPO operating performance. We hypothesize that VC-backing positively affects the quality of a firm’s management team, and that both management quality and VC-backing play a certifying role in conveying a firm’s intrinsic value to the financial market, reducing the information asymmetry faced by it.

Our empirical findings are as follows. First, we find that overall VC-backed firms have higher quality management teams compared to non-VC-backed firms. In particular, VC-backed firms have a greater percentage of management team members with MBA degrees, a greater percentage of managers with prior managerial experience, a greater percentage of managers in core functional areas (operations and production, sales and marketing, R&D, and finance), and larger management teams compared to non-VC-backed firms. At the same time, VC-backed firms have lower percentages of management team members who are CPAs and who have prior managerial experience at law and accounting firms; further, their managers have shorter average tenures and smaller heterogeneity in these tenures.

Click here to read the complete post...

Link:

http://blogs.law.harvard.edu/corpgov/2012/05/04/management-quality-venture-capital-backing-and-initial-public-offerings/

From feeds:

Blogs.law Aggregation Hub » The Harvard Law School Forum on Corporate Governance and Financial Regulation

Tags:

academic research empirical research banking & financial institutions comparative corporate governance & regulation ipos hassan tehranian karen simonyan manager characteristics thomas chemmanur venture capital firms

Authors:

R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation,

Date tagged:

05/04/2012, 09:28

Date published:

05/04/2012, 09:12