Board diversity and post-IPO performance: the case of technology start-ups

ABSTRACT

IPO firms in the technology industry are regarded as vulnerable due to their limited resources, inexperience, and relatively short technology and product lifecycles. They also lack a track record to signal to the market that they are equipped with sufficient ability to overcome the challenges faced in this highly competitive environment. This study examines whether board diversity helps IPO firms perform better in such a challenging environment; furthermore, we explore the potential contingencies that magnify or weaken the benefits of board diversity by examining how its impact is moderated by firm size and board tenure. Using a sample of 363 IPO events within technology firms over 11 years, we find that higher board diversity is associated with better post-IPO performance; however, a larger firm size and longer board tenure decrease the value created by board diversity. The findings are robust to alternative measures of performance and board diversity. Our study contributes to the literature by demonstrating the significant impact of board diversity on the performance of technology IPO firms as well as explaining the conditions under which boards effectively execute their resource dependence roles.

KEYWORDS:

• Board diversity
• Technology start-up
• IPO performance

Acknowledgements

The authors wish to thank two anonymous referees for helpful comments and suggestions. Chen and Lai acknowledge funding from the Ministry of Science and Technology, Taiwan (MOST 105-2410-H-031-056; MOST 108-2410-H-141-013-MY2).

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

1 For example, the technology environment is characterized by lawsuit filings due to its high uncertainty and information asymmetry, meaning that board members providing related consultation contribute significant value (Field, Lowry, and Mkrtchyan 2013).

2 The SIC codes and sector description of technology industries are available upon request.

3 Board Diversity  = 1-[(6/8)²+(1/8)²+(1/8)²]＝0.406

4 The results are available upon request.

Additional information

Notes on contributors

Li-Yu Chen

Li-Yu Chen is a professor at Department of Business Administration, Soochow University. She received her Ph.D. degree from the Institute of International Business at National Cheng Kung University. Her work has been published in the Journal of World Business, International Business Review, Journal of International Management, R&D Management, International Review of Financial Analysis, Corporate Governance: An International Review, etc.

Jung-Ho Lai

Jung-Ho Lai is a professor of department of Finance at National Taipei University of Business, Taiwan. She received her PhD in international business management from National Cheng Kung University. Her works have been published in several premier journals such as Financial Management, Journal of World Business, International Business Review, Journal of International Management, Omega-International Journal of Management Science, R&D management, etc.