Strategic Management Journal
Strat. Mgmt. J., 31: 000–000. (2010) Published online EarlyView in Wiley InterScience (www.interscience.wiley.com) DOI: 10.1002/smj.822 Received 20 August 2007; Final revision received 20 October 2009
GOVERNANCE, OWNERSHIP STRUCTURE AND PERFORMANCE OF IPO FIRMS: THE IMPACT OF DIFFERENT TYPES OF PRIVATE EQUITY INVESTORS AND INSTITUTIONAL ENVIRONMENTS GARRY D. BRUTON,1 * IGOR FILATOTCHEV,2 SALIM CHAHINE,3 and MIKE WRIGHT4 Neeley School of Business, Texas Christian University, Fort Worth, Texas, U.S.A. Sir John Cass Business School, City University London, London, U.K. 3 Olayan School of Business, American University of Beirut, Beirut, Lebanon 4 Centre for Management Buy-out Research, Nottingham University Business School, Nottingham, U.K. and EMLyon, France 2 1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17
Copyright 2010 John Wiley & Sons, Ltd.
*Correspondence to: Garry D. Bruton, Neeley School of Business, Texas Christian University, Fort Worth, TX 76129, U.S.A. E-mail: firstname.lastname@example.org
Keywords: agency theory; institutional theory; venture capital; business angel; legal institutions
A growing body of corporate governance research has examined the relationships between stock ownership patterns, managerial behavior, and corporate performance. Despite theoretical attractions, research on the relationship between ownership concentration and performance is, at best, mixed (Dalton et al., 2003). In part, this research is limited by its focus on the effects of large-block share
ownership in large mature ﬁrms with relatively little attention to entrepreneurial ﬁrms that underwent an initial public offering (IPO). Additionally, prior research is limited as it has not differentiated among types of investors. Recent studies on ‘conﬂicting voices’ in strategic management have acknowledged that owner identity has important organizational implications as different owners may have different objectives and decision-making horizons (Hoskisson et al., 2002), but these studies are focused on public rather than private equity investors. In private ﬁrms undergoing an IPO, the major different private equity investors will have different agency relationships that will generate a multiple agency setting that has yet to be widely
This paper examines performance effects of ownership concentration and two types of private equity investors (venture capitalists and business angels) in ﬁrms that have recently undergone an initial public offering (IPO) in the United Kingdom and France. We expand and contextualize nascent understanding of multiple agency theory by examining heterogeneity of private equity investors and by suggesting that multiple agency relationships are affected by different institutional contexts. We employ a unique, hand-collected dataset of 224 matched IPOs (112 in each country). Controlling for the endogeneity of private equity investors’ retained share ownership, we ﬁnd support for the agency theory argument that concentrated ownership improves IPOs’ performance. The research also shows that the two types of private equity investors have a differential impact on performance, and the legal institutions in a given country moderate this impact. Copyright 2010 John Wiley & Sons, Ltd.
18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57
G. D. Bruton et al.
if board members and managers do not act in their best interest and maximize ﬁrm proﬁtability. In civil law countries, investors rely more heavily on network-based, ‘relationship’ governance (Hoskisson, et al., 2004). Thus, the impact of various types of investors may be different in civil law environments, where fewer legal remedies are available compared to common law...