CEO career horizons and when to go public: the relationship between risk-taking, speed and CEO power
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CEO career horizons and when to go public: the relationship between risk-taking, speed and CEO power Mauro Romano1 • Alessandro Cirillo1 • Donata Mussolino2 Luca Pennacchio3
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Springer Science+Business Media, LLC, part of Springer Nature 2017
Abstract Initial public offerings make a noteworthy contribution to both the growth of equity markets and the promotion of entrepreneurial activities. As a strategic issue, the decision on when to go public depends on the firm’s leader, and the personal characteristics of chief executives (CEOs) have been found to affect the results of the initial public offering. This paper investigates whether the speed with which firms go public depends on the CEO’s time to retirement, the so-called career horizon. Hypothesising that CEOs with short career horizons will be more riskaverse and aim to preserve their legacy, we found that CEO career horizon is negatively related to the time the firm takes to start the initial public offering. CEOs with longer career horizons make faster, more risky decisions, such as to go public, because of their risk-taking preferences. We also examined how the extent of CEO power affects this relationship. Our results show that a low level of power is linked to more risky decisions, so that powerful CEOs tend to be associated with taking longer to reach the point of initial public offering. & Alessandro Cirillo [email protected] Mauro Romano [email protected] Donata Mussolino [email protected] Luca Pennacchio [email protected] 1
Department of Economics, University of Foggia, largo Papa Giovanni Paolo II, 1, 71121 Foggia, Italy
2
Department of Economics, Management and Institutions, University of Napoli ‘‘Federico II’’, Via Cinthia, 45 Monte Sant’Angelo, 80126 Naples, Italy
3
Department of Business and Economics, Parthenope University of Naples, Palazzo Pacanowski - Via Generale Parisi, 13, 80132 Naples, Italy
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M. Romano et al.
Keywords CEO career horizon CEO power Time to IPO Speed of decision CEO risk-taking
1 Introduction Going public is not a stage that all companies need to reach, but is definitely a choice. Initial public offerings (IPOs) offer a unique opportunity to study firms undergoing a strategic change (Chahine et al. 2011). IPO activity makes a noteworthy contribution to both the growth of equity markets and promotion of entrepreneurial activities (Zingales 1995). The decision to go public depends on internal company characteristics and perceptions of the likely effects on performance, investment and financial policy (Pagano et al. 1998). Arguably, one of the main topics of interest in IPO research is the way the CEO provides a signal to potential outside investors (Certo et al. 2009). The leader’s role in the listing process is the focus of an intense debate among scholars. CEOs act as figureheads and liaison points between the firm and the equity market. Their prestige (Certo 2003), power (Cirillo et al. 2015) and status as founder (Nelson 2003) reassure investors and attract new capital.
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