The effects of demand,competitive, and technological uncertainty on board monitoring and institutional ownership of IPO firms

This paper considers industry-specific contingencies that may account for some of the inter-firm heterogeneity in the deployment of specific corporate governance mechanisms in IPO firms. We examine how differences in demand, competitive, and technological uncertainty in the industry influence the levels of IPO firm monitoring by board outsiders and institutional investors. We test our theory using a sample of U.S. firms that completed an IPO in 24 manufacturing industries. The results indicate that industry uncertainty is, indeed, significantly related to the use of corporate governance mechanisms. In particular, the empirical results indicate that industry effects on IPO firm board monitoring and institutional investor ownership are the strongest and most consistent for demand uncertainty and competitive uncertainty.

Sharon WatsonEmail:

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Yasemin Y. Kor   is an Associate Professor of Strategic Management at University of South Carolina. She earned her Ph.D. in Business Administration in 2001 from the University of Illinois at Urbana-Champaign. Her research focuses on the intersections of three topics: development and renewal of firm resources and capabilities, top management teams, and corporate governance. The first stream of her research examines how firms develop and deploy their technology and human assets to generate entrepreneurial rents and competitive advantage. The second research area deals with how entrepreneurial skills, experiences, and interactions of top managers shape firms’ strategic choices (including opportunity recognition and team entrepreneurship). The third stream of her research focuses on human and social capital of board directors, and cooperative interactions and frictions between board outside directors and executives. Dr. Kor’s research has been published in Strategic Management Journal, Organization Science, and Journal of Management Studies. She received awards from Academy of Management and she currently serves on the editorial boards of Strategic Management Journal, Journal of Management Studies, and International Journal of Strategic Change Management. Professor Kor has taught Strategic Management, Corporate Strategy, and Entrepreneurship courses at undergraduate and MBA levels. Joseph T. Mahoney   earned his B.A., M.A., and Ph.D. from the University of Pennsylvania. His doctorate from the Wharton School of Business was in Business Economics. Joe joined the College of Business of the University of Illinois at Urbana-Champaign in 1988, was promoted to Full Professor in 2003, and to Investors in Business Education Professor of Strategy in 2007. Joe’s research interest is organizational economics, which includes: resource-based theory, transaction costs theory, real-options theory, agency theory, property rights theory, stakeholder theory, and the behavioral theory of the firm. He has published 42 articles in journal outlets such as Journal of Management, Journal of Management Studies, Strategic Organization, and Strategic Management Journal. His publications have been cited over 2000 times from scholars in 36 countries. In 2005, he published his Sage book intended for first-year doctoral students in the Strategy field: Economic Foundations of Strategy. Currently, Joe is an Associate Editor of International Journal of Strategic Change Management, and of Strategic Management Journal. He also serves on the editorial boards of Journal of Business Research, and Journal of Management Studies. Joe has taught courses in the undergraduate, M.S., M.B.A., Executive MBA, and Ph.D. programs. He has won the outstanding teaching award (as voted by the executives) five times in the Executive MBA program. In the year 2000, he won the Graduate Studies Teaching Award for the College of Business. In the year 2005, he received honorable mention for the Campus Award for Excellence in Graduate and Professional Education. He has served on 39 completed doctoral dissertation committees. Sharon Watson   is an Associate Professor of Management at the University of Delaware and earned her Ph.D. in International Business from the University of South Carolina. Her research centers around issues involved in the management of multinational corporations. Some of the topics she has studied include foreign subsidiary strategies, interdependence among MNC subsidiaries, cross-border mergers and acquisitions, and the influences of cultural values on human resources practices and outcomes. Her research has been published in outlets such as Academy of Management Journal, Strategic Management Journal, Journal of Management Studies and Management International Review. Sharon serves on the editorial board of the Journal of Management and reviews regularly for the Journal of International Business Studies and Academy of Management Journal. She teaches undergraduate and MBA courses in Strategic Management, International Business, Strategic Thinking, and New Venture Creation.