Hostname: page-component-745bb68f8f-5r2nc Total loading time: 0 Render date: 2025-02-01T01:47:27.007Z Has data issue: false hasContentIssue false
  • English
  • Français

Human Capital, Management Quality, and the Exit Decisions of Entrepreneurial Firms

Published online by Cambridge University Press:  01 November 2016

Shan He  and
C. Wei Li
Get access Rights & Permissions [Opens in a new window]

Abstract

We model the employee incentive problem jointly with a firm’s exit decision. Our model predicts that firms in industries where human capital is important are more likely to go public and use high-powered, stock-based compensation. We also show that the higher the management quality, the more likely a firm is to go public than to be acquired. Regarding life cycle, a firm with high capital intensity and/or high management quality will choose to go public at a younger age.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 51 , Issue 4 , August 2016 , pp. 1269 - 1295
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Almazan, A.; Motta, A.; and Titman, S.. “Firm Location and the Creation and Utilization of Human Capital.” Review of Economic Studies, 74 (2007), 1305–1327.Google Scholar
Alti, A.“IPO Market Timing.” Review of Financial Studies, 18 (2005), 1105–1138.Google Scholar
Aron, D. J.“Using the Capital Market as a Monitor: Corporate Spin-Offs in an Agency Framework.” Rand Journal of Economics, 22 (1991), 505–518.Google Scholar
Bancel, F., and Mittoo, U. R.. “Why Do European Firms Go Public?” European Financial Management, 15 (2009), 844–884.CrossRefGoogle Scholar
Bayar, O., and Chemmanur, T. J.. “IPOs versus Acquisitions and the Valuation Premium Puzzle: A Theory of Exit Choice by Entrepreneurs and Venture Capitalists.” Journal of Financial and Quantitative Analysis, 46 (2011), 1755–1793.CrossRefGoogle Scholar
Bayar, O., and Chemmanur, T. J.. “What Drives the Valuation Premium in IPOs versus Acquisitions? An Empirical Analysis.” Journal of Corporate Finance, 18 (2012), 451–475.CrossRefGoogle Scholar
Bayar, O.; Chemmanur, T. J.; and Liu, M. H.. “A Theory of Equity Carve-Outs and Negative Stub Values under Heterogeneous Beliefs.” Journal of Financial Economics, 100 (2011), 616–638.Google Scholar
Berk, J. B.; Stanton, R. H.; and Zechner, J.. “Human Capital, Bankruptcy and Capital Structure.” Journal of Finance, 65 (2010), 891–926.CrossRefGoogle Scholar
Bhattacharya, S., and Ritter, J. R.. “Innovation and Communication: Signaling with Partial Disclosure.” Review of Economic Studies, 50 (1983), 331–346.CrossRefGoogle Scholar
Boot, A. W.; Gopalan, R.; and Thakor, A. V.. “The Entrepreneur’s Choice between Private and Public Ownership.” Journal of Finance, 61 (2006), 803–836.Google Scholar
Brau, J.; Francis, B.; and Kohers, N.. “The Choice of IPO versus Takeover: Empirical Evidence.” Journal of Business, 76 (2003), 583–612.Google Scholar
Chemmanur, T. J., and Fulghieri, P.. “A Theory of the Going-Public Decision.” Review of Financial Studies, 12 (1999), 249–279.Google Scholar
Chemmanur, T. J., and He, J.. “IPO Waves, Product Market Competition, and the Going Public Decision: Theory and Evidence.” Journal of Financial Economics, 101 (2011), 382–412.Google Scholar
Chemmanur, T. J.; He, J.; He, S.; and Nandy, D. K.. “Product Market Characteristics and the Choice between IPOs and Acquisitions.” Working Paper, Boston College (2013).Google Scholar
Chemmanur, T. J., and Paeglis, I.. “Management Quality, Certification, and Initial Public Offerings.” Journal of Financial Economics, 76 (2005), 331–368.Google Scholar
Chemmanur, T. J.; Simonyan, K.; and Tehranian, H.. “The Role of Management Quality in the IPOs of Venture-Backed Entrepreneurial Firms.” Working Paper, Boston College (2012).Google Scholar
Field, L.“Control Considerations of Newly Public Firms: The Implementation of Antitakeover Provisions and Dual Class Shares before the IPO.” Working Paper, Pennsylvania State University (1999).Google Scholar
Field, L., and Karpoff, J.. “Takeover Defenses of IPO Firms.” Journal of Finance, 57 (2002), 1857–1889.Google Scholar
Gao, X.; Ritter, J. R.; and Zhu, Z.. “Where Have All the IPOs Gone?” Journal of Financial and Quantitative Analysis, 48 (2013), 1663–1692.CrossRefGoogle Scholar
Gompers, P. A.; Lerner, J.; Scharfstein, D.; and Kovner, A.. “Performance Persistence in Entrepreneurship and Venture Capital.” Journal of Financial Economics, 96 (2010), 18–32.Google Scholar
Holmström, B., and Tirole, J.. “Market Liquidity and Performance Monitoring.” Journal of Political Economy, 101 (1993), 678–709.Google Scholar
Jaggia, P. B., and Thakor, A. V.. “Firm-Specific Human Capital and Optimal Capital Structure.” International Economic Review, 35 (1994), 283–308.Google Scholar
Jain, B. A., and Kini, O.. “Industry Clustering of Initial Public Offerings.” Managerial and Decision Economics, 27 (2006), 1–20.Google Scholar
Mirrlees, J. A.“The Theory of Moral Hazard and Unobservable Behaviour: Part 1.” Review of Economic Studies, 66 (1999), 3–21.CrossRefGoogle Scholar
Pagano, M., and Röell, A.. “The Choice of Stock Ownership Structure: Agency Costs, Monitoring, and the Decision to Go Public.” Quarterly Journal of Economics, 113 (1998), 187–225.Google Scholar
Pastor, L., and Veronesi, P.. “Rational IPO Waves.” Journal of Finance, 60 (2005), 1713–1757.Google Scholar
Poulsen, A. B., and Stegemoller, M.. “Moving Firms from Private to Public Ownership: Selling Out to Public Firms versus Initial Public Offerings.” Financial Management, 37 (2008), 81–101.Google Scholar
Ritter, J. R.“Differences between European and American IPO Markets.” European Financial Management, 9 (2003), 421–434.Google Scholar
Röell, A.“The Decision To Go Public: An Overview.” European Economic Review, 40 (1996), 1071–1081.Google Scholar
Subrahmanyam, A., and Titman, S.. “Feedback from Stock Prices to Cash Flows.” Journal of Finance, 56 (2001), 2389–2413.Google Scholar
Vascellaro, J.“Facebook CEO in No Rush to ‘Friend’ Wall Street.” Wall Street Journal (Mar. 4, 2010), A1.Google Scholar
Zingales, L.“Insider Ownership and the Decision To Go Public.” Review of Economic Studies, 62 (1995), 425–448.Google Scholar