Well-matched: Ownership experience and IPO success

Abstract

The likely impact of corporate owners on firm performance has been the subject of considerable debate in the strategy and organizational literatures. While this debate has benefited from recent scholarly interest in ownership heterogeneity, this interest typically addresses heterogeneous owner interests/motivations, rather than possible differences in owner capabilities. This study addresses the heterogeneity in experience of firms’ owners. We offer a learning perspective to analyze when firms are most likely to benefit from leveraging owners’ prior experience, and we develop a contingency approach that allows us to make normative predictions regarding the direction and magnitude of ownership effects on firm performance. We test our hypotheses using extensive data in the IPO context, based on the entire population of private firms attempting to go public for the first time between 1997 and 2004 and all venture capital firms that invested in these private firms. The supportive findings suggest that the likelihood to go public and the performance of the newly public firm are significantly affected by the match between the prior experience of these owners and the private firm’s needs. We discuss the implications of these findings for theories of ownership and entrepreneurship.