The Effects of Management-Board Ties on IPO Performance

71 Pages Posted: 7 Feb 2013

See all articles by Salim Chahine

Salim Chahine

American University of Beirut - Olayan School of Business

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Date Written: February 1, 2013

Abstract

This paper studies the two potentially contrasting effects on IPO pricing and post-IPO operating performance of family ties as well as social ties the top management has with board members. While family ties may solve manager-owner conflicts of interests, they may also give rise to minority-shareholder expropriation and/or private benefits of control. Similarly, social ties may either create value or lead to entrenchment and excessive managerial power. Using q-analysis to measure the strength of top manager ties to board members, we find that IPO performance is positively related to the strength of social ties, but negatively to the strength of family ties. We also find that, controlling for social ties, board independence affects both IPO pricing and post-IPO operating performance. Further, we show that the association between IPO performance and ties depends on whether they are with inside or outside directors.

Keywords: Social tie, Family tie, Entrenchment, Alignment of interest, IPO performance, q-analysis

JEL Classification: G32, G34, L14

Suggested Citation

Chahine, Salim and Goergen, Marc, The Effects of Management-Board Ties on IPO Performance (February 1, 2013). ECGI - Finance Working Paper No. 348/2013. Available at SSRN: https://ssrn.com/abstract=2200362 or http://dx.doi.org/10.2139/ssrn.2200362

Salim Chahine (Contact Author)

American University of Beirut - Olayan School of Business ( email )

Bliss Street
Beirut 1107 2020
Lebanon
961-1-374-374 (Phone)

Marc Goergen

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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