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Strategic Alliances and Corporate Governance in Newly Public Firms: Evidence from Corporate Venture Capital

Vladimir I. Ivanov

US Securities & Exchange Commission

Ronald W. Masulis

University of New South Wales - Australian School of Business; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN)

June 2008

EFA 2007 Ljubljana Meetings Paper
ECGI - Finance Working Paper No. 210/2008

We examine IPOs of startups backed by corporate venture capitalists (CVCs) and the propensity of CVC parents to establish strategic alliance with these startup firms. We investigate the differences in the governance structures of venture capital (VC) backed IPO firms. A major difference in objectives between CVCs and traditional venture capitalists (TVCs) is that CVCs often invest for strategic reasons and their parent firms frequently enter into various forms of strategic business relations with their portfolio firms which persist well beyond the IPO. We argue that such strategic alliances can have a significant impact on the governance structure of CVC backed firms, both when they go public and in the following years. Using a sample of VC backed IPOs, we evaluate several hypotheses concerning a CVC's role in the corporate governance of newly public firms. We find that strategic CVC backed IPOs have weaker CEOs and a larger proportion of independent directors on their boards and compensation committees compared to a matched sample of TVC backed IPO firms. CVC backed IPO firms also have a higher frequencies of staggered boards and forced CEO turnovers. Comparing the corporate governance of IPO firms having strategic alliances with CVC parents with TVC backed IPOs with outside strategic alliances, we find strategic CVC investors have a mean ownership stake of 16.4% compared to 2.2% for outside strategic partners and the strategic CVCs hold significantly more board seats than other strategic alliance partners, both pre- and post-IPO. Finally, these two subsamples of IPO issuers have similar frequencies of takeover defenses.

Number of Pages in PDF File: 61

Keywords: Corporate governance, Strategic alliances, Corporate venture capital, IPOs

JEL Classification: G24, G30, G34

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Date posted: May 7, 2008 ; Last revised: September 18, 2008

Suggested Citation

Ivanov, Vladimir I. and Masulis, Ronald W., Strategic Alliances and Corporate Governance in Newly Public Firms: Evidence from Corporate Venture Capital (June 2008). EFA 2007 Ljubljana Meetings Paper; ECGI - Finance Working Paper No. 210/2008. Available at SSRN: https://ssrn.com/abstract=972152 or http://dx.doi.org/10.2139/ssrn.972152

Contact Information

Vladimir Ivanov
US Securities & Exchange Commission ( email )
Washington, DC
United States
202-551-5307 (Phone)
Ronald W. Masulis (Contact Author)
University of New South Wales - Australian School of Business ( email )
Sydney, NSW 2052
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )
B-1050 Brussels
Financial Research Network (FIRN)
C/- University of Queensland Business School
St Lucia, 4071 Brisbane
HOME PAGE: http://www.firn.org.au

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