Economics at your fingertips  

The best of both worlds: Can founder-CEOs overcome the rich versus king dilemma after IPO?

Asma Fattoum, Frédéric Delmar () and Mike Wright
Additional contact information
Asma Fattoum: emlyon business school

Post-Print from HAL

Abstract: Research Summary: To prevent loss of control post‐IPO, founder‐CEOs can implement control‐enhancing mechanisms disconnecting ownership from voting rights. However, this decision places them in a rich versus king dilemma. If they choose to implement such mechanisms and secure the king position, they risk losing money at IPO. If they choose not to implement control‐enhancing mechanisms and adopt the rich position they risk losing control over the firm. We investigate theoretically and empirically the outcomes of this dilemma in a multi‐period setting (at IPO and post‐IPO). We found that the majority of founder‐CEOs who choose the king option recover initial wealth loss, and hence, they can reconcile the rich and king paths in the long‐run post‐IPO.Managerial Summary: Founder‐CEOs often use control‐enhancing mechanisms (CEMs), such dual class shares, pyramid control structures, and pact agreements, to maintain control over their IPO firms. In this study, we investigate the effects of these CEMs on firm value at IPO and post‐IPO using a unique hand‐collected dataset comprising all founder‐CEO led firms that went public on French regulated markets between January 1992 and December 2010. We found that most founder‐CEOs who use multiple CEMs leave considerable amounts of money on the table at IPO date but they are able to recover their initial loss 5 years post‐IPO. This result suggests that an IPO may constitute a valuable financing alternative even for founder‐CEOs who value control.

Keywords: principal-principal agency cost; anti-takeover mechanisms; founder-CEOs; IPOs; ownership structure (search for similar items in EconPapers)
Date: 2018-12-01
Note: View the original document on HAL open archive server:
References: Add references at CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed

Published in Strategic Management Journal, 2018, 3382-3407 p

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: The best of both worlds: Can founder‐CEOs overcome the rich versus king dilemma after IPO? (2018) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link:

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

Page updated 2021-06-17
Handle: RePEc:hal:journl:hal-02312249