Signaling, resource-based power, and pre-IPO organizational change

The theory presented suggests that underwriters are both advisors and independent agents in the issuerʼs attempt to send “signals” of quality to investors by making pre-IPO organizational changes. These pre-IPO gambits are intended to increase IPO proceeds, and preemptively address potential investo...

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Bibliographic Details
Published in:New England journal of entrepreneurship 2012-03, Vol.15 (1), p.29-42
Main Authors: Pearlstein, John S., Hamilton, Robert D.
Format: Article
Language:English
Subjects:
Entrepreneurs
Entrepreneurship
Initial public offerings
Investors
Organization theory
Organizational change
organizational theory
Power
Research & development expenditures
resource-based power
Risk exposure
Signaling
Studies
underpricing
Underwriting
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Summary:The theory presented suggests that underwriters are both advisors and independent agents in the issuerʼs attempt to send “signals” of quality to investors by making pre-IPO organizational changes. These pre-IPO gambits are intended to increase IPO proceeds, and preemptively address potential investor concerns that would deter them from subscribing. These organizational changes initially can financially benefit founders, early investors and underwriters. But they can also have a longterm impact that some issuers, especially founders, would prefer to avoid. Utilizing signaling and resource-based power, we find that underwriter power is significantly associated with making pre-IPO gambits and lower levels of underpricing.
ISSN:1550-333X
2574-8904
2574-8904
DOI:10.1108/NEJE-15-01-2012-B003