TMT Characteristics, Time-to-IPO and Firm Performance *

Abstract

IntroductionThere are good reasons for a firm's top managers and investors to complete an early in the life of the firm. For instance, they may be motivated to complete an by the desire to improve the firm's reputation, create a currency for acquisitions, or mobilize capital for supporting growth (Brau and Fawcett, 2006). An is considered by many to be an achievement and/or a performance milestone for a new and an indicator that it is primed for growth (Chang, 2004). An provides an opportunity for founders and investors to cash out and be compensated for shouldering considerable risk during the formative stages of a (Pagano, et al., 1998). In addition, capitalists and other investors, seeking to increase the real rate of return on their investment, may prefer that a complete an sooner rather than later (Shepherd and Zacharakis, 2001, p. 59).On the other hand, there are equally good reasons for top managers and investors to delay an to the greatest extent possible. The change from private to public ownership is a significant transformational event and may expose the again to the liabilities of newness (Fischer and Pollock, 2004). Indeed, research has shown that a significant number of firms under-perform the market or fail within three to five years after their IPOs (Fischer and Pollock, 2004; Jain and Kini, 2000; Ritter, 1984). As such, managers may elect to take time to learn and build their human resources, systems, and operations, as well as build market share so that the can withstand the intense scrutiny and demands of operating as a public company.It is this dilemma that Jovanovic and Rousseau (2001) attempted to solve, when they raised the question Why wait? in their paper analyzing the time firms have taken to complete their initial public offerings (IPOs). They suggested that the answer to this question may depend on the trade-off that the firm's top managers make between incurring the opportunity cost of waiting, and taking the time to learn about their technologies, products and markets (Clark, 2002).The choice of when to go public is an important one for a firm's legitimacy, immediate resource needs, and future performance. A number of studies have explored the implications of time-to-IPO, i.e., the time elapsed between founding and completion of its IPO. Many studies have considered time-to-IPO as an outcome or performance measure in relationship to characteristics including industry (Giot and Schwienbacher, 2007; Shepherd and Zakarakis, 2001), geographic location (Shepherd and Zakarakis, 2001), location near rivals (Stuart and Sorenson, 2003), the reputation of capital firms investing in the and that of the firm's alliance partners (Chang, 2004), and the breadth of experience of the founding team (Beckman and Burton, 2008). Other studies have used time-to-IPO - typically termed firm or firm age at IPO - as a variable with the potential to influence either outcomes at IPO, such as under-pricing (e.g., Ritter, 1998), or the firm's post-IPO market performance or survival (e.g., Fischer and Pollock, 2004; Higgins and Gulati, 2006; Jain and Kini, 2008).In this study, we focus specifically on the influences of the demographic characteristics of a firm's top management team (TMT) - a set of variables that decidedly influences the firm's early development and subsequent evolution - on its time-to-IPO and performance. For the firm, the time between founding and (i.e., time-to-IPO) may provide an opportunity for learning and preparation in advance of the IPO. The effect that TMT characteristics have on performance may well be influenced by the time-to-IPO, i.e. the firm's time-to-IPO also may moderate the relationship between TMT characteristics and performance. Accordingly, we examine three related issues: (1) the direct influence of the demographic characteristics of the firm's TMT on its time-to-IPO and performance; (2) the direct effect of time-to-IPO on the firm's performance; and (3) the potential role of time-to-IPO as a moderator in the relationships between TMT characteristics and the firm's performance. …