Cash Crisis in Newly Public Internet-Based Firms: An Empirical Analysis

Posted: 17 Nov 2009

See all articles by Monica Zimmerman Treichel

Monica Zimmerman Treichel

Independent

Ram Mudambi

Temple University - Department of Strategic Management

Multiple version iconThere are 2 versions of this paper

Date Written: 2005

Abstract

This study examines why some new ventures struggle in spite of an absence of financial constraints.More specifically, the crisis of new ventures is examined within the context of the cash burn of Internet-based firms.Taken together, the hypotheses developed suggest that a firm with a large, young top management team, a strong financial position prior to going public, an extensive network, and a location in a resource-rich cluster is likely to perform well. Data from 207 new Internet firms that went public between 1996 and 1999 are used to determine whether these pre-initial public offering (IPO) characteristics are indeed integral to high firm performance.These data cover the network relationships, size, ownership structure, business model, top management team (TMT) characteristics, and financial position of each IPO firm.The hypotheses are largely supported by the data--i.e., the performance of new ventures is a function of pre-IPO characteristics.New Internet-based ventures would do well to have a young management team, a low debt-to-assets ratio, and a strong equity position. (SAA)

Keywords: Firm performance, Experimental/primary research, Ownership structures, Startups, Cash flow, Firm location, Debt, Internet, Initial public offerings (IPO), Management teams, Social networks, Public offerings, Equity

Suggested Citation

Treichel, Monica Zimmerman and Mudambi, Ram, Cash Crisis in Newly Public Internet-Based Firms: An Empirical Analysis (2005). University of Illinois at Urbana-Champaign's Academy for Entrepreneurial Leadership Historical Research Reference in Entrepreneurship, Available at SSRN: https://ssrn.com/abstract=1506793

Ram Mudambi

Temple University - Department of Strategic Management ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States
215-204-2099 (Phone)
215-204-8029 (Fax)

HOME PAGE: http://sbm.temple.edu/~rmudambi/index.html

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