Public Offerings

Public Offering

Importance of Public Offering

Board serves as a key governance structure, resource entity, and signal to the market at IPO. The tumult of external changes places a premium on rapid decision making within a resource-constrained venture. Thus, investors are especially concerned with whether a relatively young board can make fast decisions because most ventures form a formal board for the first time at IPO. Rapid decision making is more important for ventures within an emerging market, such as China. First, new ventures going public have to deal with multiple actors (e.g., lawyers, investment bankers, regulators).

The constant market and institutional turbulence in an emerging market require a new venture's board to act promptly. Moreover, the underdeveloped institutions do not support the clear definition of roles of board members. Decision making processes are largely built upon informality including interpersonal ties and trust. As a result, it is challenging for a board to make rapid decisions. However, few studies have explored the impact of founder directors on board's ability to make fast decisions at IPO. Therefore, this is the overall importance of Initial Public Offering (Carter & Manaster, 1990, 1067).

Advantage of the Public Offering to the company

Existing studies, on the one hand, have supported the positive impact of founders at firm IPO. Founders have been involved in the creation and growth of the company, so their personal identification with the firm is likely to be greater than nonfounders. In addition, the retention of original founders will result in the reduction of conflict between managerial and shareholder interests. Given their reputation, leadership, and pro-organizational attitude, founders can also mitigate political battles within the firm. Moreover, founders' retention at IPO guarantees the consistency of the firm's strategy and fosters long-term vision, which is a key at the transitional period of IPO. Empirically, a positive impact of original TMT board members on IPO performance has been found (Denis & McConnel, 2003, 36).

Nevertheless, a growing body of research suggests the negative impacts of founders and original TMT on new venture performance. The liability is largely attributed to founders' cognitive limitations and lack of objectivity and experience in handling organizational change. The researchers known as Certo, Covin, Daily, & Dalton in 2001 find that founder-CEO has a positive effect on IPO under pricing because of founders' “untested management”. Without independent input and alternative perspectives, founders with dominant power can be averse to risks and changes. The reseaechers known as Bitler, Moskowitz, & Vissing-Jorgensen in 2005 showed that entrepreneur's equity ownership decreases with risk-taking propensity. Due to the absence of external endorsement and formal control, founder-dominant firm may lose credibility and be susceptible to the liability of newness.

Thus, high proportion of nonexecutive directors and the intensity of their extra organizational links can reduce the extent of under pricing. The states and markets also had a strong relationship with each other and these also need a strong stability for the future. In the long credit boom that ended in 2007-08 the private sector became heavily indebted ...