Technical Specialized Knowledge and Secondary Shares in Initial Public Offerings

This paper utilizes an understudied but often utilized aspect of initial public offerings (IPOs), secondary shares, to examine whether the knowledge conditions of firms give rise to agency problems that limit the ability of founders and venture capitalists to sell equity at IPO. In an analysis of 2,...

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Bibliographic Details
Published in:Management science 2009-10, Vol.55 (10), p.1670-1687
Main Authors: Junkunc, Marc T, Eckhardt, Jonathan T
Format: Article
Language:English
Subjects:
Adverse selection
Applied sciences
Biotechnology industry
Boards of directors
Business structures
Capital management
Corporate finance
Demographic aspects
Entrepreneurs
Entrepreneurship
Equity
Exact sciences and technology
Financing methods
Firm modelling
founder exit
Going public (Securities)
Hypotheses
Impact analysis
Influence
Initial public offering
Initial public offerings
Investment banking
Investment strategies
Investments
Investors
IPOs
Knowledge
Liquidity
Management
Management science
Methods
Moral hazard
Operational research and scientific management
Operational research. Management science
Portfolio management
Portfolio theory
Product development
Secondary markets
secondary shares
specialized knowledge
Stock shares
Stockholders
Stocks
Studies
Venture capital
Venture capital companies
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Summary:This paper utilizes an understudied but often utilized aspect of initial public offerings (IPOs), secondary shares, to examine whether the knowledge conditions of firms give rise to agency problems that limit the ability of founders and venture capitalists to sell equity at IPO. In an analysis of 2,190 IPOs spanning from 1992 through 2002, we find that private owners are less likely to be observed selling their equity at IPO in ventures that are highly dependent on technical specialized knowledge as measured by the count of individuals with Ph.D.s in the top management team and board of directors. However, we find that this limit on the financial liquidity of founders and venture capitalists is alleviated when the venture's output has received greater market acceptance. Hence, the findings suggest that the financial liquidity of individuals involved in entrepreneurship is likely to be influenced by the knowledge conditions of their venture.
ISSN:0025-1909
1526-5501
DOI:10.1287/mnsc.1090.1051