The Impact of Ownership Structure Change at IPO on Firm Growth

This paper focuses on how the change of ownership structure at the time of initial public offering (IPO) will raise governance problems and affect the firm’s long-term performance after IPO. More specifically, we argue that for high-tech firms, founders and venture capitalists (VCs) selling equity at IPO will reduce the firms’ performance after IPO due to weakened incentive mechanisms and information asymmetry. We further identified psychological ownership and technical specialized knowledge as two moderators of these relationships for founders and VCs selling. High psychological ownership of founders will mitigate the negative impact of founders selling, but as the firm depends more on technical specialized knowledge, the negative impact of VCs selling will be even worse. Our analysis of high-tech companies that went public from 1992 to 2002 provides support for most of our hypotheses. The results of this paper extend knowledge in the IPO, governance and entrepreneurship literatures. This paper also has ...