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Firm–Specific Human Capital and Governance in IPO Firms: Addressing Agency and Resource Dependence Concerns

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  • Jonathan D. Arthurs
  • Lowell W. Busenitz
  • Robert E. Hoskisson
  • Richard A. Johnson

Abstract

Entrepreneurs with firm–specific human capital represent both a potential source of competitive advantage and a threat to appropriate the rents that are ultimately generated by a new venture. This situation presents interesting agency and resource dependence challenges. While potential investors in these ventures will want assurances that their interests are protected, they will also want to ensure that these key entrepreneurs remain with the organization. Using agency theory and resource dependence theory, we examine the types of governance mechanisms that are implemented in firms going through an initial public offering comparing those ventures which indicate a dependence on these critical entrepreneurs versus those that do not. Our analysis reveals that ventures exhibiting dependence on key entrepreneurs are associated with higher insider and outsider ownership by the board, greater start–up experience by the board, greater use of contingent compensation, and greater use of involuntary departure agreements.

Suggested Citation

  • Jonathan D. Arthurs & Lowell W. Busenitz & Robert E. Hoskisson & Richard A. Johnson, 2009. "Firm–Specific Human Capital and Governance in IPO Firms: Addressing Agency and Resource Dependence Concerns," Entrepreneurship Theory and Practice, , vol. 33(4), pages 845-865, July.
    • Handle: RePEc:sae:entthe:v:33:y:2009:i:4:p:845-865
    DOI: 10.1111/j.1540-6520.2009.00329.x
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    Cited by:

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    2. Erik Lehmann & Thorsten Braun & Sebastian Krispin, 2012. "Entrepreneurial human capital, complementary assets, and takeover probability," The Journal of Technology Transfer, Springer, vol. 37(5), pages 589-608, October.
    3. Braun, Thorsten V. & Lehmann, Erik E. & Schwerdtfeger, Manuel T., 2011. "The stock market evaluation of IPO-firm takeovers," UO Working Papers 01-11, University of Augsburg, Chair of Management and Organization.
    4. Michele Meoli & Stefano Paleari & Silvio Vismara, 2013. "Completing the technology transfer process: M&As of science-based IPOs," Small Business Economics, Springer, vol. 40(2), pages 227-248, February.
    5. Shima Amini & Sofia Johan & Eilnaz Kashefi Pour & Abdulkadir Mohamed, 2023. "Employee Welfare, Social Capital, and IPO Firm Survival," Entrepreneurship Theory and Practice, , vol. 47(6), pages 2174-2204, November.
    6. Kretinin, Andrey & Anokhin, Sergey & Wincent, Joakim, 2020. "Exploring the antecedents of franchise internationalization," Journal of Business Research, Elsevier, vol. 112(C), pages 422-430.
    7. Grichnik, Dietmar & Brinckmann, Jan & Singh, Luv & Manigart, Sophie, 2014. "Beyond environmental scarcity: Human and social capital as driving forces of bootstrapping activities," Journal of Business Venturing, Elsevier, vol. 29(2), pages 310-326.
    8. Erik E. Lehmann & Manuel T. Schwerdtfeger, 2016. "Evaluation of IPO-firm takeovers: an event study," Small Business Economics, Springer, vol. 47(4), pages 921-938, December.
    9. Knockaert, Mirjam & Bjornali, Ekaterina S. & Erikson, Truls, 2015. "Joining forces: Top management team and board chair characteristics as antecedents of board service involvement," Journal of Business Venturing, Elsevier, vol. 30(3), pages 420-435.
    10. Liu, Kun & Arthurs, Jonathan, 2019. "How does dependence on key employees matter for initial public offerings of U.S. high-tech firms?," Journal of Business Research, Elsevier, vol. 102(C), pages 74-82.
    11. Purkayastha, Saptarshi & Veliyath, Rajaram & George, Rejie, 2019. "The roles of family ownership and family management in the governance of agency conflicts," Journal of Business Research, Elsevier, vol. 98(C), pages 50-64.
    12. Walters, Bruce A. & Le, Son A. & Kroll, Mark, 2015. "Post-IPO governance and top management team rent generation and appropriation," Journal of Business Research, Elsevier, vol. 68(1), pages 47-55.
    13. Chemmanur, Thomas J. & Gupta, Manish & Simonyan, Karen & Tehranian, Hassan, 2021. "The relationship between venture capital backing and the top management team quality of firms going public and implications for initial public offerings," Journal of Business Venturing, Elsevier, vol. 36(6).

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