Founders, Governance, and Firm Valuation: Does the Market Perceive Psychological Ownership?
Frontiers of Entrepreneurship Research 2007
13 Pages Posted: 6 Dec 2007 Last revised: 10 Feb 2009
We examine the impact of the governance in entrepreneurial firms at the time of the IPO focusing on market valuation based on whether the founder is still with the company. Using agency theory to explain the governance devices (and their purpose), we probe their impact on firm valuation. We develop hypotheses using concepts from psychological ownership to explain why the devices would differ based on founder status and why the market would value them differently. Consistent with our theorizing, we find that stronger bonding mechanisms have a negative impact on valuation when the founder is still with the organization. We also find that stronger monitoring is associated with higher valuation when the founder is still with the firm. The implications of these findings and several directions for future research are discussed as well.
JEL Classification: M13
Suggested Citation: Suggested Citation