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Bargaining on Board Structure at the Initial Public Offering

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Abstract

Going public often creates an agency conflict between the owner-manager and minority shareholders. One possible way to resolve this conflict is through independent board monitoring. But board monitoring does not arise automatically in IPO companies. Owner-managers tend to entrench and capture the board. Analyzing a sample of French IPO firms, we find that the fraction of independent directors declines if the owner-manager is more powerful. However, we find that large pre-IPO non-management shareholders, such as venture capitalists, are successful in bargaining on board composition. These shareholders are successful in opposing the owner-manager and prevent a further reduction in the proportion of independent directors in the board. We also find that these shareholders contract on board composition in shareholder agreements.

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Authors and Affiliations

  1. Department of Financial Management, RSM Erasmus University, PO Box 1738, 3000, DR, Rotterdam, The Netherlands

    Peter Roosenboom

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  1. Peter Roosenboom
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Roosenboom, P. Bargaining on Board Structure at the Initial Public Offering. J Manage Governance 9, 171–198 (2005). https://doi.org/10.1007/s10997-005-4035-8

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  • DOI: https://doi.org/10.1007/s10997-005-4035-8

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