Managerial Incentives and IPO Failure Risk

92 Pages Posted: 11 Feb 2019 Last revised: 29 Aug 2019

See all articles by Gonul Colak

Gonul Colak

Hanken School of Economics

Dimitrios Gounopoulos

University of Bath

Georgios Loukopoulos

The Open University

Panagiotis Loukopoulos

University of Strathclyde

Date Written: April 9, 2019

Abstract

IPO firms with high-powered CEO incentive contracts have lower failure rates in the aftermarket. Economically, an interquartile change in the distribution of CEO pay translates in a reduction of the failure risk probability by approximately 21%. The Pay Gap between the CEO and its subordinate executives (tournament incentives) also plays a major role in lowering IPO failure risk. The effectiveness of CEO pay is strengthened among well-governed firms, whereas tournament incentives are essential when there is high CEO succession risk. Both measures of executive pay are associated with better financial reporting quality, higher investment efficiency, and superior operating performance.

Keywords: Executive Compensation, Pay Gap, IPO Survival, Initial Public Offerings

JEL Classification: G24, G30, G31, G32, J31, J33, L25

Suggested Citation

Colak, Gonul and Gounopoulos, Dimitrios and Loukopoulos, Georgios and Loukopoulos, Panagiotis, Managerial Incentives and IPO Failure Risk (April 9, 2019). Available at SSRN: https://ssrn.com/abstract=3250415 or http://dx.doi.org/10.2139/ssrn.3250415

Gonul Colak

Hanken School of Economics ( email )

P.O. Box 479
FI-00101 Helsinki, 00101
Finland

Dimitrios Gounopoulos (Contact Author)

University of Bath ( email )

School of Management,
Wessex House, Claverton Down
Bath, BA2 7AY
United Kingdom

Georgios Loukopoulos

The Open University ( email )

Walton Hall
Milton Keynes, MK6 7AA
United Kingdom

Panagiotis Loukopoulos

University of Strathclyde ( email )

Curran Building
100 Cathedral Street
Glasgow G4 0LN
United Kingdom

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