Unraveling Interconnections: Analyzing the Impact of a Founder’s Characteristics on Business Growth Strategy
Abstract
:1. Introduction
2. Materials and Methods
- Re-admissions and transfers;
- Investment trusts;
- Investment and acquisition vehicles;
- Spin-offs, de-mergers and equity carve-outs;
- Reverse takeovers and equity re-organizations;
- Companies outside of the UK;
- Missing prospectus;
- Those without a corporate governance system in place prior to IPO;
- Non-entrepreneurial companies.
2.1. Dependent Variables
2.2. Independent Variables
- Founder’s functional background was defined in output and throughput domains. Those founders with R&D and/or marketing/sales experience were assigned to the output functional category (value = 0), whilst those with production and operations; accounting/finance; legal; and/or general management experience were assigned to the throughput category (value = 1);
- Founder’s external directorships were defined as being the sum of external executive positions and board memberships held by the founder before IPO;
- Founder’s age was measured in years;
- Board composition was defined as being the proportion of external members expressed as a percentage.
- Using the Daellenbach et al. [23] method, education level was indicated on a five-point scale that considered the highest level of education attained by the founder (0 if a university degree was not held; 1 if an undergraduate degree was held, 2 if a master’s degree was held, 3 if an MBA was held, 4 if a PhD (or other doctorate) was held);
- A further ‘dummy’ variable was used to indicate if the founder held a PhD (1 if the founder held a PhD [or equivalent doctorate level qualification] and 0 if otherwise).
2.3. Control Variables
- Firm size—measured as the value of the total assets based upon data from Thomson One Banker and to which a natural logarithm transformation was applied;
- Firm debt levels—measured as the leverage debt/common equity calculated using Thomson data, expressed as a %, and delayed by 1 year;
- Venture capital control—measured as the % of outstanding shares held by venture capitalists based upon data collected from IPO prospectuses;
- Past profitability—measured as the return on assets (ROA) delayed by 1 year;
- Capital expenditure—normalized by total sales.
3. Findings
3.1. Founder’s Work Experience
3.2. Founder’s External Directorships
3.3. Founder’s Education
3.4. Founder’s Age
3.5. Founder’s Ownership
3.6. Founder’s Investment in R&D
3.7. Performance of Control Variables
4. Discussion
5. Conclusions
Author Contributions
Funding
Institutional Review Board Statement
Informed Consent Statement
Data Availability Statement
Acknowledgments
Conflicts of Interest
References
- Hambrick, D.; Crozier, L. Stumblers and stars in the management of rapid growth. Bus. Vent. 1985, 1, 31–45. [Google Scholar] [CrossRef]
- Reber, B.; Gold, A.; Gold, S. ESG disclosure and idiosyncratic risk in initial public offerings. Bus. Ethics 2022, 179, 867–886. [Google Scholar] [CrossRef]
- Lowry, M.; Michaely, R.; Volkova, E. Initial public offerings: A synthesis of the literature and directions for future research. Found. Trends Fin. 2017, 11, 154–320. [Google Scholar] [CrossRef]
- Tutuncu, L. Allocation discretion, price discounts and returns in Turkish initial public offerings. Islam. Middle East. Fin. Manag. 2022, 15, 865–883. [Google Scholar] [CrossRef]
- Jain, B.; Kini, O. The life cycle of initial public offering firms. Bus. Fin. Acc. 1999, 26, 1281–1307. [Google Scholar] [CrossRef]
- Wasserman, N. Founder-CEO succession and the paradox of entrepreneurial success. Org. Sci. 2003, 14, 149–172. [Google Scholar] [CrossRef]
- Miloud, T. Corporate governance and initial public offerings. Entrep. Inn. Manag. 2019, 23, 1–22. [Google Scholar] [CrossRef]
- Kesner, I.; Sebora, T. Executive succession: Past, present and future. J. Manag. 1994, 20, 327–372. [Google Scholar]
- Dalton, D.; Kesner, I. Inside/outside succession and organizational size: The pragmatics of executive succession. Acad. Manag. 1983, 26, 736–742. [Google Scholar] [CrossRef]
- Lee, J.; Yoon, D.; Boivie, S. Founder CEO succession: The role of CEO organizational identification. Acad. Manag. 2020, 63, 224–245. [Google Scholar] [CrossRef]
- Datta, D.; Guthrie, J. Executive succession: Organizational antecedents of CEO characteristics. Strat. Manag. 1994, 15, 569–577. [Google Scholar] [CrossRef]
- Sarfraz, M.; He, B.; Shah, S.; Fareed, Z. Myth or reality? Unveiling the effectiveness of hierarchical CEO succession on firm performance and cash holdings. Bus. Econ. Manag. 2021, 22, 1008–1025. [Google Scholar] [CrossRef]
- Daily, C.; Dalton, D. The relationship between governance structure and corporate performance in entrepreneurial firms. Bus. Vent. 1992, 7, 375–386. [Google Scholar] [CrossRef]
- Liu, Y.; Polkinghorne, M. The impact of founder characteristics on CEO—Succession in UK IPOs. Bus. Manag. Fin. 2023, 2, 1008. [Google Scholar]
- Reuer, J.; Shen, J. The extended merger and acquisition process: Understanding the role of IPOs in corporate strategy. Eur. Manag. J. 2014, 21, 192–198. [Google Scholar] [CrossRef]
- Anderson, C.; Huang, J.; Torna, G. Can investors anticipate post-IPO mergers and acquisitions? J. Corp. Fin. 2014, 45, 496–521. [Google Scholar] [CrossRef]
- Hsieh, J.; Lyandres, E.; Zhdanov, A. A theory of merger-driven IPOs. J. Fin. Quant Analy. 2014, 46, 1367–1405. [Google Scholar] [CrossRef]
- Constable, J. Diversification as a factor in UK industrial strategy. Long Range Plan. 1986, 19, 52–60. [Google Scholar] [CrossRef]
- Hitt, M.; Hoskisson, R.; Ireland, R. Mergers and acquisitions and managerial commitment to innovation in M-form firms. Strat. Manag. 1990, 11, 29–47. [Google Scholar]
- Vismara, S. Patents, R&D investments and post-IPO strategies. Rev. Manag. Sci. 2014, 8, 419–435. [Google Scholar]
- Fedyk, T.; Khimich, N. R&D investment decisions of IPO firms and long-term future performance. Rev. Acc. Fin. 2018, 17, 78–108. [Google Scholar]
- Lévesque, M.; Joglekar, N.; Davies, J. A comparison of revenue growth at recent-IPO and established firms: The influence of SG&A, R&D and COGS. J. Bus. Vent. 2012, 27, 47–61. [Google Scholar]
- Hill, C.; Snell, S. Effects of ownership structure and control on corporate productivity. Acad. Manag. 1989, 32, 25–46. [Google Scholar] [CrossRef]
- Capron, L.; Dussauge, P.; Mitchell, W. Resource redeployment following horizontal mergers and acquisitions in Europe and the United States, 1988-1992. Strat. Manag. J. 1998, 19, 631–661. [Google Scholar] [CrossRef]
- Liu, Y.; Polkinghorne, M. The impact of the founder’s characteristics on a firm’s growth strategy. In Proceedings of the 43rd Eurasian Business and Economics Society (EBES) Conference, Madrid, Spain, 12–14 April 2023. [Google Scholar]
- Bell, E.; Bryman, A.; Harley, B. Business Research Methods, 5th ed.; Oxford University Press: Oxford, UK, 2018. [Google Scholar]
- Collis, J.; Hussey, R. Business Research: A Practical Guide for Undergraduate and Postgraduate Students; Palgrave Macmillan: London, UK, 2021. [Google Scholar]
- Saunders, M.; Lewis, A.; Thornhill, A. Research Methods for Business Students, 8th ed.; Pearson: London, UK, 2019. [Google Scholar]
- Daellenbach, U.; McCarthy, A.; Schoenecker, T. Commitment to innovation: The impact of top management team characteristics. RD Manag. 1999, 29, 199–208. [Google Scholar] [CrossRef]
- Filatotchev, I.; Piesse, J. Strategic choice and growth of newly listed firms: European evidence. Int. Bus. Stud. 2009, 40, 1260–1276. [Google Scholar] [CrossRef]
- Beyer, J.; Chattopadhyay, P.; George, E.; Glick, W.; Ogilvie, D.; Pugliese, D. The selective perception of managers revisited. Acad. Manag. 1997, 40, 716–737. [Google Scholar] [CrossRef]
- Dearborn, D.; Simon, H. Selective perception: A note on the departmental identifications of executives. Sociometry 1958, 21, 140–144. [Google Scholar] [CrossRef]
- Tyler, B.; Steensma, H. The effects of executives’ experiences and perceptions on their assessment of potential technological alliances. Strat. Manag. 1998, 19, 939–965. [Google Scholar] [CrossRef]
- Waller, M.; Huber, G.; Glick, W. Functional background as a determinant of executives’ selective perception. Acad. Manag. 1995, 38, 943–974. [Google Scholar] [CrossRef]
- Walsh, J. Selectivity and selective perception: An investigation of managers’ belief structures and information processing. Acad. Manag. 1988, 31, 873–896. [Google Scholar] [CrossRef]
- Hambrick, D.; Mason, P. Upper echelons—the organization as a reflection of its top managers. Acad. Manag. Rev. 1984, 9, 193–206. [Google Scholar] [CrossRef]
- Barker, V.; Mueller, G. CEO characteristics and firm R&D spending. Manag. Sci. 2002, 48, 782–801. [Google Scholar]
- Mulugeta, T. Impacts of R&D expenditures on firms’ innovation and financial performance: A panel data evidence from Ethiopian firms. Res. Sq. 2021, 2021, 1–31. [Google Scholar]
- Lee, P.; O’Neill, H. Ownership structures and R&D investments of U.S. and Japanese firms: Agency and stewardship perspectives. Acad. Manag. 2003, 46, 212–225. [Google Scholar]
- Das, T.; Teng, B. A resource-based theory of strategic alliances. J. Manag. 2000, 26, 31–61. [Google Scholar] [CrossRef]
- Ayatakshi-Endow, S.; Polkinghorne, M.; Okafor, U. It’s not just Physical: Gender and Bias in Equity Crowdfunding. In Eurasian Business and Economics Perspectives; Bilgin, M., Danis, H., Demir, E., Bodolica, V., Eds.; Springer: Cham, Switzerland, 2022; Volume 23, pp. 81–110. [Google Scholar]
- Pagano, M.; Panetta, F.; Zingales, L. Why do companies go public? An empirical analysis. Finance 1998, 53, 27–64. [Google Scholar] [CrossRef]
- Brau, J.; Fawcett, S. Initial public offerings: An analysis of theory and practice. J. Financ. 2006, 61, 399–436. [Google Scholar] [CrossRef]
- Celikyurt, U.; Sevilir, M.; Shivdasani, A. Going public to acquire? The acquisition motive in IPOs. Fin. Econ. 2010, 96, 345–363. [Google Scholar] [CrossRef]
- Carper, W. Corporate acquisitions and shareholder wealth: A review and exploratory analysis. J. Manag. 1990, 16, 807. [Google Scholar] [CrossRef]
- Hitt, M.; Freeman, R.; Harrison, J. The Blackwell Handbook of Strategic Managagement; Blackwell: Oxford, UK, 2005. [Google Scholar]
- Luo, J.; Wang, W. Do managers’ professional connections benefit their firms in mergers and acquisitions: Chinese evidence. Rev. Quan. Financ. Account. 2022, 60, 679–713. [Google Scholar] [CrossRef]
- Hitt, M.; Biermant, L.; Shimizu, K.; Kochhar, R. Direct and moderating effects of human capital on strategy and performance in professional service firms: A resource-based perspective. Acad. Manag. 2001, 44, 13–28. [Google Scholar] [CrossRef]
- Barney, J. Firm resources and sustained competitive advantage. J. Manag. 1991, 17, 99–120. [Google Scholar] [CrossRef]
- Rossoni, L.; Aranha, C.; Mendes-Da-Silva, W. The complexity of social capital: The influence of board and ownership interlocks on implied cost of capital in an emerging market. Complexity 2018, 2018, 1–12. [Google Scholar] [CrossRef]
- Geletkanycz, M.; Hambrick, D. The external ties of top executives: Implications for strategic choice and performance. Admin. Sci. Quart. 1997, 42, 654–681. [Google Scholar] [CrossRef]
- Li, Y.; Zhou, T. Corporate social capital and innovation performance: A literature review. Soc. Sci. Eco. Res. 2021, 6, 871–882. [Google Scholar] [CrossRef]
- Allen, R.; Helms, M. Linking strategic practices and organizational performance to Porter’s generic strategies. Bus. Proc. Manag. J. 2006, 12, 433–454. [Google Scholar] [CrossRef]
- Cohen, W.; Levinthal, D. Innovation and Learning: The Two Faces of R&D. Econ. J. 1989, 99, 569–596. [Google Scholar]
- Tanwar, R. Porter’s generic competitive strategies. J. Bus. Manag. 2013, 15, 11–17. [Google Scholar] [CrossRef]
Hypotheses | |
---|---|
Hypotheses relating to the founder–CEO’s functional background | 1a. A positive relationship exists between a founder with an output functional background and the intensity of R&D expenditures, and there is a negative relationship between a founder with a throughput functional background and the intensity of R&D expenditures. |
1b. A negative relationship exists between a founder with an output function experience and the intensity of M&A expenditures, and there is a positive relationship between a founder with a throughput functional background and the intensity of M&A expenditures. | |
Hypotheses relating to the founder–CEO’s external directorships | 2a. A positive relationship exists between the founder’s past external directorships and the intensity of M&A expenditures. |
2b. A negative relationship exists between the founder’s past external directorships and the intensity of R&D expenditures. | |
Hypotheses relating to the founder–CEO’s education | 3a. A positive relationship exists between a founder’s formal educational level and the intensity of R&D expenditures. |
3b. A negative relationship exists between a founder’s formal educational level and the intensity of M&A. | |
Hypotheses relating to the founder–CEO’s formal education | 3c. A positive relationship exists between a founder with a PhD and the intensity of R&D expenditures. |
3d. A negative relationship exists between a founder without a PhD and the intensity of M&A expenditures. | |
Hypotheses relating to the founder–CEO’s age. | 4a. A negative relationship exists between a founder’s age and the intensity of R&D expenditures. |
4b. A positive relationship exists between a founder’s age and the intensity of M&A expenditures. | |
Hypotheses relating to the founder–CEO’s share ownership. | 5a. A positive relationship exists between a founder’s share ownership and the intensity of R&D expenditures. |
5b. A negative relationship exists between a founder’s share ownership and the intensity of M&A expenditures. | |
Hypotheses relating to the founder–CEO’s strategic choices. | 6a. A positive relationship exists between the presence of a founder–CEO and the intensity of R&D expenditures. |
6b. A negative relationship exists between the presence of a founder–CEO and the intensity of M&A expenditures. |
Mean | SD | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13 | 14 | |
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 0.02 | 0.05 | 1 | |||||||||||||
| 0.48 | 1.12 | −0.07 | 1 | ||||||||||||
| 2.44 | 1.54 | −0.18 † | 0.27 † | 1 | |||||||||||
| 1.80 | 35.23 | −0.02 | −0.02 | −0.04 | 1 | ||||||||||
| −0.27 | 0.89 | −0.34 † | 0.10 † | 0.38 † | −0.04 | 1 | |||||||||
| 8.31 | 5.47 | −0.06 | 0.07 | 0.10 † | −0.05 | 0.11 † | 1 | ||||||||
| 0.04 | 13.19 | 0.02 | 0.00 | −0.02 | −0.01 | −0.02 | 0.09 * | 1 | |||||||
| 0.57 | 0.50 | −0.00 | −0.07 | 0.09 † | −0.07 | 0.04 | 0.03 | 0.11 † | 1 | ||||||
| 2.56 | 4.14 | 0.04 | 0.20 | 0.14 † | −0.03 | −0.01 | −0.05 | −0.05 | −0.02 | 1 | |||||
| 45.99 | 11.94 | 0.06 | −0.04 | 0.13 † | −0.04 | 0.02 | 0.05 | −0.07 | 0.09 † | 0.14 † | 1 | ||||
| 1.20 | 1.47 | 0.13† | −0.11† | 0.00 | −0.04 | 0.02 | −0.08 * | 0.01 | 0.14 † | −0.10 † | 0.11 † | 1 | |||
| 0.16 | 0.37 | 0.17 † | −0.09 * | −0.08 * | −0.02 | −0.00 | −0.03 | −0.00 | 0.14 † | −0.11 † | 0.12 † | 0.84 † | 1 | ||
| 0.22 | 18.23 | −0.16 † | 0.02 | 0.07 | 0.11 † | 0.12 † | 0.06 | −0.21 † | −0.01 | 0.17 † | 0.06 | −0.15 † | −0.18 † | 1 | |
| 0.55 | 0.50 | −0.13 † | 0.09 * | 0.11 † | −0.04 | 0.08 * | −0.01 | 0.05 | −0.13 † | −0.03 | −0.19 † | −0.03 | −0.11† | 0.14 † | 1 |
Model 1 | Model 2 | |||
---|---|---|---|---|
Variable | β | SE | β | SE |
Ln assets | −0.0002084 | 0.0012005 | 0.0001717 | 0.0011987 |
Leverage t-1 | −0.0000106 | 0.0000428 | −0.0000117 | 0.0000426 |
ROA t-1 | −0.0227786 *** | 0.0026895 | −0.0228153 *** | 0.0026691 |
Firm’s age | −0.0000448 | 0.0002801 | −0.0001033 | 0.0002771 |
Venture capital ownership % | 0.0004996 | 0.0119486 | 0.0015433 | 0.0118805 |
Board composition % | 0.0218781 * | 0.0105223 | 0.0222111 * | 0.0104329 |
Financial sector | −0.0076013 | 0.0071843 | −0.0091885 | 0.0070645 |
Information technology sector | −0.0043745 | 0.0037238 | −0.00406 | 0.0037025 |
Founder’s functional background | −0.001899 | 0.0031383 | −0.0021709 | 0.0031124 |
Founder’s past external directorship | 0.0008081 * | 0.0003781 | 0.0008383 * | 0.0003759 |
Founder’s age | 0.0001809 | 0.0001316 | 0.0001624 | 0.0001309 |
Founder’s educational level | 0.0036113 ** | 0.0010592 | ||
Founder’s PhD | 0.0178794 *** | 0.0041336 | ||
Founder’s ownership % | −0.0269733 ** | 0.0089447 | −0.0251271 ** | 0.0089131 |
Founder–CEO | −0.0050354 | 0.0031837 | −0.0042421 | 0.0031624 |
Number of M&A t-1 | −0.0016511 | 0.0013103 | −0.0018238 | 0.0012988 |
Constant | −0.0034249 | 0.0089078 | −0.0025348 | 0.0088368 |
χ2 | 160.98 | 169.9 |
Model 1 | Model 2 | |||
---|---|---|---|---|
Variable | β | SE | β | SE |
Ln assets | 0.1684558 *** | 0.0363561 | 0.1706559 *** | 0.0365829 |
Leverage t-1 | −0.0001565 | 0.0013422 | −0.0001834 | 0.0013444 |
ROA t-1 | 0.0360008 | 0.0889842 | 0.0229265 | 0.0890189 |
Firm’s age | −0.2092518 * | 0.0982082 | −0.2292021 * | 0.0980971 |
Venture capital ownership % | 0.2100723 | 0.3744927 | 0.2383712 | 0.3752341 |
Board composition % | −0.0687032 | 0.3304916 | −0.1061383 | 0.3302182 |
Financial sector | −0.0594043 | 0.2252567 | −0.0137527 | 0.2232577 |
Information technology sector | −0.230129 * | 0.1166275 | −0.2231082 † | 0.1168629 |
Founder’s functional background | 0.0158513 † | 0.0087671 | 0.017008 † | 0.0087373 |
Founder’s past external directorship | 0.0556451 *** | 0.0116353 | 0.0568523 *** | 0.0116507 |
Founder’s age | −0.0077105 † | 0.0041212 | −0.0083576 * | 0.0041272 |
Founder’s educational level | −0.0435393 | 0.0333627 | ||
Founder’s PhD | −0.0169555 | 0.1319434 | ||
Founder’s ownership % | −0.099586 | 0.2799929 | −0.0544655 | 0.281214 |
Founder–CEO | 0.090921 | 0.099857 | 0.0849039 | 0.0999202 |
R&D expenditures/no of employees t-1 | −0.3884505 | 0.8698507 | −0.4955797 | 0.8737373 |
Constant | 0.4044011 | 0.2789776 | 0.3812168 | 0.2789224 |
χ2 | 88.19 | 86.21 |
Disclaimer/Publisher’s Note: The statements, opinions and data contained in all publications are solely those of the individual author(s) and contributor(s) and not of MDPI and/or the editor(s). MDPI and/or the editor(s) disclaim responsibility for any injury to people or property resulting from any ideas, methods, instructions or products referred to in the content. |
© 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https://creativecommons.org/licenses/by/4.0/).
Share and Cite
Liu, Y.; Polkinghorne, M. Unraveling Interconnections: Analyzing the Impact of a Founder’s Characteristics on Business Growth Strategy. Businesses 2023, 3, 475-488. https://doi.org/10.3390/businesses3030029
Liu Y, Polkinghorne M. Unraveling Interconnections: Analyzing the Impact of a Founder’s Characteristics on Business Growth Strategy. Businesses. 2023; 3(3):475-488. https://doi.org/10.3390/businesses3030029
Chicago/Turabian StyleLiu, Ying, and Martyn Polkinghorne. 2023. "Unraveling Interconnections: Analyzing the Impact of a Founder’s Characteristics on Business Growth Strategy" Businesses 3, no. 3: 475-488. https://doi.org/10.3390/businesses3030029