Human Capital, Management Quality, and the Exit Decisions of Entrepreneurial Firms
51 Pages Posted: 18 Mar 2011 Last revised: 6 May 2016
Date Written: June 1, 2014
We model the employee incentive problem jointly with a firm’s exit decision. Our model predicts that firms in industries where human capital is important are more likely to go public and use high-powered stock-based compensation. We also show that the higher the management quality, the more likely a firm is to go public than to be acquired. Lifecycle-wise, a firm with high capital intensity and/or high management quality will choose to go public at a younger age.
Keywords: Exit Decision; Initial Public Offerings; Takeover; Human Capital; Management Quality; Principal-Agent Relationship; Moral Hazard Problem; Incentive Contract
JEL Classification: G30, G32
Suggested Citation: Suggested Citation