A Test of Lazear’s Theory of Entrepreneurship in the Open Source Software Virtual Community

Abstract

While the process of pursuing an initial public offering (IPO) provides new capital with which new ventures might pursue significant opportunities, research suggests that many IPO firms decrease in value subsequent to the new offering. Using an agency perspective, we argue that the IPO process itself may not only raise direct governance costs (due to increased monitoring and bonding), but may also create a distraction for managers who need to remain focused on the strategy to effectively use a large infusion of capital from the IPO. Likewise, we argue that governance participants, especially board members, will be distracted by the work necessary to take the firm public and, as such, may not be focused on the strategic monitoring necessary for continued firm's viability. This lack of monitoring may also allow managerial opportunism to be more prevalent, especially given the large amount of capital available to managers once the IPO is completed. Accordingly, we argue that excessive governance costs (both direct and indirect) may be associated with the IPO process and subsequent IPO firm performance.

The option value in Jack‐of‐all‐trades investment

“…In other words, JAT is well‐tested and highly cited, but continues to develop as researchers attempt to extend it to new areas and to explain weak results. Indeed, there have been several recent extensions of the model, for example, relating to: gender (Strohmeyer et al, 2017; Tegtmeier et al, 2016); the outcome of product quality (Roberts, Negro, & Swaminathan, 2013); the input of small business experience (Elfenbein et al, 2010); and the focal role as being a project manager rather than a new venture creator (Giuri, Rullani, & Torrisi, 2009).…”