PRESTIGIOUS EXECUTIVES, DIRECTORS AND BACKERS OF IPOs: ENDURING ADVANTAGE OR FADING GLOSS?

Abstract

Even though there is consistent evidence that the enlistment of prestigious allies, or what are known as prestigious backers, helps to push up the initial valuation of an initial public offering (IPO), at least two fundamental questions remain: What causes prestigious backers to sign on? And does their value extend at all beyond initially impressing the market? Drawing on concepts from interorganizational relations and upper-echelons theory, this article argues that, to the extent the officers and directors of an IPO themselves have prestigious external ties, the greater their ability to enlist prestigious backers, specifically prestigious venture capital firms and prestigious underwriters. Namely, prestigious backers attach meaning and value to indicators of prestige when making their decisions about whom to back and are drawn to offerings that have upper-echelons who match their own stature. We expect that an IPO that commences with prestigious upper-echelons figures will enjoy an upward spiral of benefits that will extend well beyond the valuation of the IPO itself, to affect post-IPO performance. A more skeptical view would be that prestigious upper-echelons and prestigious backers provide mere gloss for an IPO, buoying the market's initial reaction but providing little subsequent benefits.