Incentives and Governance in Entrepreneurial Firms

49 Pages Posted: 9 May 2001  

Ellen Engel

University of Chicago Booth School of Business

Elizabeth A. Gordon

Temple University - Department of Accounting

Rachel M. Hayes

University of Utah - David Eccles School of Business

Date Written: April 2001

Abstract

This paper analyzes corporate governance decisions at firms making initial public offerings (IPOs) of common stock between 1996 and 1999. Our objective is to examine relationships between firms' corporate governance practices and the quality and availability of accounting- and market-based measures of firm performance. We collect a sample of 464 companies from the manufacturing, internet, and technology (non-internet) industries, and examine how CEO incentives vary with industry and with the extent of venture capital influence. We first study determinants of executives' compensation-related incentives and share ownership at the time of the IPO, and then examine factors affecting firms' decisions over executive compensation grants and CEO turnover subsequent to the IPO. Consistent with prior research that finds earnings are of limited usefulness in firm valuation for internet firms, we find internet and non-internet firms place differing importance on earnings and information in stock returns in determining post-IPO compensation grants. We also find that firms with little or no venture capital influence display significantly stronger association with accounting and stock performance measures than firms with more intense monitoring by venture capitalists.

Keywords: Initial public offerings; Governance; Performance measurement

JEL Classification: G12, G24, G30, M41, J33

Suggested Citation

Engel, Ellen and Gordon, Elizabeth A. and Hayes, Rachel M., Incentives and Governance in Entrepreneurial Firms (April 2001). Available at SSRN: https://ssrn.com/abstract=268305 or http://dx.doi.org/10.2139/ssrn.268305

Ellen Engel (Contact Author)

University of Chicago Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-834-0966 (Phone)
866-377-52152 (Fax)

Elizabeth A. Gordon

Temple University - Department of Accounting ( email )

Philadelphia, PA 19122
United States
2152046422 (Phone)

Rachel M. Hayes

University of Utah - David Eccles School of Business ( email )

1645 E Campus Center Dr
Salt Lake City, UT 84112-9303
United States

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