The Determinants of Board Structure at the Initial Public Offering

Posted: 12 Oct 2004 Last revised: 22 Jan 2009

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Paul A. Gompers

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

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Abstract

This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 IPO firms. First, venture capital-backed firms have fewer insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO - tenure and voting control - and increases with the power of outside investors - venture capital backing and venture firm reputation. Third, within the sample of venture financed firms and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the ten years after the IPO.

Keywords: Corporate Governance, Board of Directors, IPO, Venture Capital

JEL Classification: G24, G34

Suggested Citation

Baker, Malcolm P. and Gompers, Paul A., The Determinants of Board Structure at the Initial Public Offering. Journal of Law and Economics, Vol. 46, No. 2, pp. 569-598, October 2003. Available at SSRN: https://ssrn.com/abstract=601901

Malcolm P. Baker (Contact Author)

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Paul A. Gompers

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6297 (Phone)
617-496-8443 (Fax)

Harvard University - Entrepreneurial Management Unit ( email )

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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

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

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