Founder teams and firm value in young public firms: An analysis of the moderating effect of founders' ownership power and team size

Abstract

Research Question/Issue Building on prior work on the relationship between founder ownership and firm value in young public firms, we test the moderating influence of the presence of cofounders, distinguishing between dyads and teams of three or more founders. Research Findings/Insights We test our hypotheses on a unique sample of 7162 observations from 959 US firms that have been public for less than 20 years and retained their founders. We show that the presence of one or more cofounders has distinct moderating effects on the relationship between main founder ownership and firm value, depending on the number and relative ownership power of the founders. Firm value benefits the most when there is ownership power symmetry in dyads of founders and ownership power asymmetry in teams of three or more founders. Theoretical/Academic Implications We make two contributions to the corporate governance literature. First, we take a more nuanced look at founders and their ownership power in young public firms and show that the presence of cofounders has an effect on firm value. Second, we show that this effect depends on the number of founders and on whether there is ownership power symmetry or asymmetry among founders. Overall, our study supports the view that founders continue to matter even after IPO. Practitioner/Policy Implications By shedding light on the effect of founders retaining ownership power on firm value after IPO, our findings may guide founders in their decisions to exit their business fully or partially and investors in their decisions whether to invest in public firms that retain their founders.

Birds of a feather flock together: How and when does the fit of CEO–CFO high promotion focus predict new venture initial public offering fraud?

“…Interactions among executives in new ventures are more frequent than those in established firms (Talaulicar, 2020). Thus, scholars posit that focusing on established firms provides narrow insights and limits the generalizability of corporate governance literature (Dawson et al, 2021). Especially nowadays, they emphasize that it is imperative for us to shift insights from large established firms to new ventures (Dawson et al, 2021; Talaulicar, 2020).…”

“…Thus, scholars posit that focusing on established firms provides narrow insights and limits the generalizability of corporate governance literature (Dawson et al, 2021). Especially nowadays, they emphasize that it is imperative for us to shift insights from large established firms to new ventures (Dawson et al, 2021; Talaulicar, 2020). By focusing on the CEO–CFO dyad in the context of new ventures, we can have an improved understanding of the role that the subteam of TMT plays in influencing new venture fraud.…”

“…Internet CEO Yueting Jia and CFO Lijie Yang from the securities market for life because of IPO fraud. 2 (Yueting Jia, CEO of Leshi Internet) Corporate governance research emphasizes the necessity to shift insights from large established firms to new ventures during initial public offering (IPO) (Dawson et al, 2021;Garg, 2020;Talaulicar, 2020). The latter are subject to relatively weak scrutiny and, thus, have high probability to commit fraud (Tian et al, 2016).…”

CEO Power and Firm Value: Affirmative Action Implications

“…Chiu et al [14] also concluded that CEO power has a direct positive effect on the firm's financial performance. Finally, [15] also found that the characteristics of the board of directors and the CEO significantly contribute to a firm's market value. H1 = CEO Power has a positive and significant effect on Firm Value.…”

Does duration of team governance decrease corporate carbon emission intensity

“…Beyond a potential theoretical explanation, whether the relationship is positive or negative typically depends on certain moderators (team size and gender diversity) (Dawson et al, 2022; Poletti‐Hughes and Martinez Garcia, 2022; Kabore et al, 2021; Lauring & Villesèche, 2019; Li, 2018; Ruiz‐Jiménez et al, 2016; Backes‐Gellner et al, 2015a; Vaccaro et al, 2012). Based on social identity theory, team size is viewed as a critical boundary condition for affecting team partnership (Sui et al, 2016; Levine & Crowther, 2008) and a pivotal characteristic shaping internal team dynamics (Stewart, 2006).…”