Associate Professor of Strategy
IAF 08/09; IAF 2520443; Corporate Governance; Value Creation, Strategy and Implementation;
Journal Article | Academy of Management Journal | 51 | October 2008
Puttin’ on the Ritz: Pre-IPO Enlistment of Prestigious Affiliates as Deadline-Induced Remediation
In preparing for their IPOs, firms have incentives to enlist prestigious affiliates to signal their quality. The authors describe two theoretical mechanisms for explaining the amount and pace of prestige-enhancement that a firm engages in during the year leading up to an IPO, as well as the costs involved.The “snowball model” represents our consolidated portrayal of some well-known processes that cause those organizations that already have the most prestige to steadily accumulate even more. The “dressing-up model” is built upon a phenomenon that has not been studied in the macro-organizational context: deadline-induced remediation. Examining final-year hiring of prestigious executives and directors in a sample of 242 software IPOs, we find that the snowball model substantially explains final-year prestigious hiring. But there is also strong evidence of a tandem dressing-up process.As the final year counts down, prestige-scarce firms engage in aggressive hiring of prestigious executives and directors, and they pay a relatively higher price in doing so.