Human Capital, Management Quality, and the Exit Decisions of Entrepreneurial Firms

He, Shan; Li, C. Wei

doi:10.2139/ssrn.1787690

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Human Capital, Management Quality, and the Exit Decisions of Entrepreneurial Firms

Forthcoming at the Journal of Financial and Quantitative Analysis (JFQA), Vol. 51, 2016

51 Pages Posted: 18 Mar 2011 Last revised: 6 May 2016

See all articles by Shan He

Shan He

Louisiana State University; Oregon State University

C. Wei Li

University of Iowa

Date Written: June 1, 2014

Abstract

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

He, Shan and He, Shan and Li, C. Wei, Human Capital, Management Quality, and the Exit Decisions of Entrepreneurial Firms (June 1, 2014). Forthcoming at the Journal of Financial and Quantitative Analysis (JFQA), Vol. 51, 2016, Available at SSRN: https://ssrn.com/abstract=1787690 or http://dx.doi.org/10.2139/ssrn.1787690