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The People/Performance Balance in IPO Firms: The Effect of the Chief Executive Officer's Financial Orientation

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  • Alice O. Andrews
  • Theresa M. Welbourne

Abstract

Welbourne and Andrews (1996) studied IPO firms and found that Tobin's Q, at the time of the IPO, was lower for firms that they coded as having higher levels of human resource value (HR Value). However, those same firms were more likely to survive five years after the IPO. Given that finding, this study examines one factor that may influence the firm's choice between maximizing short-term financial performance (doing well at the IPO) or long-term performance (maximizing HR value). Using the theory of upper echelons (Hambrick & Mason, 1984), we show that the decision on how to balance these forces is shaped in part by the chief executive officer's (CEO) functional background. We focus on CEOs with primary training in finance because they will most closely identify with investment community pressures to perform well at the time of the IPO. In two different samples of IPO firms, we find that the CEO's financial background is associated with lower levels of human resource value, but, contrary to what we expected, having a finance-oriented CEO does not maximize short-term gains in the IPO.

Suggested Citation

  • Alice O. Andrews & Theresa M. Welbourne, 2000. "The People/Performance Balance in IPO Firms: The Effect of the Chief Executive Officer's Financial Orientation," Entrepreneurship Theory and Practice, , vol. 25(1), pages 93-106, October.
    • Handle: RePEc:sae:entthe:v:25:y:2000:i:1:p:93-106
    DOI: 10.1177/104225870002500108
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    References listed on IDEAS

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    1. Garry Bruton & Vance Fried & Robert D. Hisrich, 1997. "Venture Capitalist and CEO Dismissal," Entrepreneurship Theory and Practice, , vol. 21(3), pages 41-54, April.
    2. Smirlock, Michael & Gilligan, Thomas & Marshall, William, 1984. "Tobin's q and the Structure-Performance Relationship," American Economic Review, American Economic Association, vol. 74(5), pages 1051-1060, December.
    3. Roland Calori & Gerry Johnson & Philippe Sarnin, 1994. "Ceos' cognitive maps and the scope of the organization," Strategic Management Journal, Wiley Blackwell, vol. 15(6), pages 437-457, July.
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    1. Alexandra Dawson & Imants Paeglis & Nilanjan Basu, 2018. "Founder as Steward or Agent? A Study of Founder Ownership and Firm Value," Entrepreneurship Theory and Practice, , vol. 42(6), pages 886-910, November.
    2. Cirillo, Alessandro & Romano, Mauro & Pennacchio, Luca, 2015. "All the power in two hands: The role of CEOs in family IPOs," European Management Journal, Elsevier, vol. 33(5), pages 392-406.
    3. Xuequn Wang & Leonard M. Jessup, 2014. "A Review and Synthesis of Entrepreneurship Research: Towards an Integrative Model of Dependent Variables," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 23(2), pages 163-199, September.
    4. Catherine M. Daily & S. Trevis Certo & Dan R. Dalton & Rungpen Roengpitya, 2003. "IPO Underpricing: A Meta-Analysis and Research Synthesis," Entrepreneurship Theory and Practice, , vol. 27(3), pages 271-295, July.

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