Entrepreneurial Firm and
IPO (initial public offering)
One of the most important events in the life of an entrepreneurial firm is when
it undergoes an IPO. An Initial Public Offering (IPO) can provide an
entrepreneurial firm with critical resources for its future expansion. It can
also provide the entrepreneur with the first substantive access to cash from
their investment of time and resources in the entrepreneurial effort. Under
pricing of the stock at the IPO, the difference between the initial price at
which a firm's stock is offered and the closing price of the stock on the first
day of trading, is a major concern to the entrepreneurial firm and to the
entrepreneur since it represents value the market ultimately sees in the stock
but which the firm/entrepreneur did not obtain when the stock was first offered
for sale.
For entrepreneurial firms the IPO represents a high degree of success to date
and an indication that the firm will have greater resources to pursue its
strategic goals in the future. For the entrepreneurs, who are often referred to
as "paper millionaires" until the IPO stock market flotation, the IPO is the
first opportunity to actually obtain cash from their entrepreneurial venture.
The IPO is thus a highly significant event for the entrepreneurial firm, where
under pricing can steal part of the benefit that the entrepreneurial firm and
the entrepreneur may seek. This research extends our understanding of how under
pricing can be limited in the IPO process. It sheds light on the role played by
founder and private equity investor ownership and informs future research on
this important event in the life of an entrepreneurial firm.