Founders, Governance, and Firm Valuation: Does the Market Perceive Psychological Ownership?

Babson College Entrepreneurship Research Conference (BCERC) 2007

Frontiers of Entrepreneurship Research 2007

13 Pages Posted: 6 Dec 2007 Last revised: 10 Feb 2009

See all articles by Jonathan D. Arthurs

Jonathan D. Arthurs

Washington State University

David M. Townsend

North Carolina State University - Poole College of Management

Lowell W. Busenitz

University of Oklahoma - Michael F. Price College of Business

Kun Liu

Washington State University - College of Business and Economics

Robert E. Hoskisson

Arizona State University (ASU) - Management Department

Abstract

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.

Keywords: Entrepreneurship

JEL Classification: M13

Suggested Citation

Arthurs, Jonathan D. and Townsend, David M. and Busenitz, Lowell W. and Liu, Kun and Hoskisson, Robert E., Founders, Governance, and Firm Valuation: Does the Market Perceive Psychological Ownership?. Babson College Entrepreneurship Research Conference (BCERC) 2007; Frontiers of Entrepreneurship Research 2007. Available at SSRN: https://ssrn.com/abstract=1064081

Jonathan D. Arthurs (Contact Author)

Washington State University ( email )

Wilson Rd.
College of Business
Pullman, WA 99164
United States

David M. Townsend

North Carolina State University - Poole College of Management ( email )

Hillsborough Street
Raleigh, NC 27695-8614
United States

Lowell W. Busenitz

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

Kun Liu

Washington State University - College of Business and Economics ( email )

PO Box 644750
Pullman, WA 99164-4750
United States

Robert E. Hoskisson

Arizona State University (ASU) - Management Department ( email )

Main Campus
PO Box 874006
Tempe, AZ 85287-4006
United States

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