Abstract

An initial public offering (IPO) is an important step for entrepreneurial firms. It enables them to obtain financing for R&D-based strategies that lead them to further stages of growth. At the same time, an IPO naturally involves changes in governance structure. With this paper I aim at discovering which governance structures enhance the contribution of R&D investments to the long-run performance of IPOs.

From a resource-based view, continuous investments in R&D help firms to create sustainable competitive advantage (Barney, 1991). However, R&D projects are subject to uncertainty; they involve information asymmetry, require long-term investments, and have high failure rates. Due to the nature of R&D investments agency conflicts increase when a firm deploys resources in R&D. According to agency theory (Jensen & Meckling, 1976) such conflicts decrease firm performance. Governance structures may, thus, influence the benefits from R&D investments through the alignment of interests between managers and owners as well as monitoring by shareholders. In this paper, I derive hypotheses on the direct effect of R&D investments on long-run profitability as well as interaction effects with founder and venture capitalist control, managerial and supervisory board ownership, and ownership dispersion.

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