Venture capitalists and underwriters influence the ethics and virtues of IPO firms. The study found that: 1) Greater venture capitalist involvement was associated with higher organizational virtue orientation in IPO firms. 2) IPO firms with more prestigious underwriters also had higher organizational virtue orientation. 3) The influence of venture capitalists decreased as IPO firms became older, while underwriter prestige was less influential for older IPO firms.

1. STAKEHOLDER INFLUENCE ON THE
ETHICS AND VIRTUES OF IPO FIRMS
Michael S. McLeod
Robert Evert
*With support from the Texas Tech University Ethics Center

2. Background

3. Our Focus and Contributions
• Organizational ethics and virtues are important streams
of research in entrepreneurship
• Major corporate scandals (i.e., Bear Stearns, Lehman
Brothers, Enron, Tyco International)
• How do corporations, given their economic mission,
manage ethics -- and who influences (Goodpaster, 1991)?

4. Ethics in Organizations
• Growing research on virtues and entrepreneurial
organizations
• Yet little accomplished on ethics and virtues in
entrepreneurial processes such as IPOs (Daily, Certo, Dalton, & Roengpitya,
2003; Debicki, Matheme, Kellermanns, & Chrisman, 2009).
• Ample empirical evidence that IPO firms require unique
finance, knowledge, and networking resources (Gompers & Lerner,
1999), but how these factors affect virtues and ethics are
relatively under-explored in entrepreneurship. (Goodstein & Wright,
2007; Payne et al., 2011)

5. The IPO Context
• This context is important -- ethics and virtues salient to
IPO firms that rely on stakeholders (i.e., venture
capitalists, underwriters)
• Unique relationship created during the IPO process
• Hence, we:
• consider previously neglected topic of stakeholder
influence on organizational ethics and virtue.
• advance understanding of how and in what ways key
stakeholders influence change in organizational
virtue.

6. Theory

7. Resource Dependence Theory
• Resource dependence theory (RDT) used to examine
stakeholder influence on strategic decision-making
and impact on firm performance (Buysse & Verbeke, 2003; Freeman & McVea,
2001)
• More relevant to our effort, literature also has
considered the influence that stakeholders have on
firm morality and ethical orientation (Parmar et al., 2010; Rodgers & Gago,
2001)
• It follows that RDT also explains how stakeholders
influence organizational virtues…

8. IPO Firms, Venture Capitalists, and Underwriters
• RDT at the heart of IPO and entrepreneurship research!
• Firms are reliant on resources during the IPO process
(Frooman, 1999)
• VCs have financial, knowledge, and network
resources (Polat & Wadhwa, 2008; Zider, 1998)
• Offerings of equity incentives (Westerman, Geiger, & Cyr, 2008)
• CEO turnover (Polat & Wadhwa, 2008)
• Ownership structure of target firms (Campbell & Frye, 2006)
• UWs have prestige as a resource (Carter & Manaster, 1990)
• Due diligence required by investors (Carter & Manaster, 1990)
• Institutional image and reputation (Agrawal & Cooper, 2010)

9. Hypotheses
Hypothesis 1: VC level of involvement positively influences the
organizational ethics and virtues of an IPO firm.
Hypothesis 2: Underwriter prestige positively influences the
organizational ethics and virtues of an IPO firm.

10. Firm Age as a Moderator
• For investors – as firms age, performance uncertainty is
alleviated (e.g., Deeds, DeCarolis, & Coombs, 1997; Zimmerman & Zeitz, 2002)
• Seasoned firms have substantive financial histories, making them less risky
(Daily et al., 2003)
• Presents a problem for nascent IPO firms (Gulati & Higgins, 2003)
• For stakeholders -- firm age has been associated with
size, inertia, and resistance to change.

11. Hypotheses
Hypothesis 3: IPO firm age will moderate the relationship between VC
involvement and organizational ethics and virtues of an IPO firm, such
that older IPO firms will be influenced less by VCs than newer IPO
firms.
Hypothesis 4: IPO firm age will moderate the relationship between UW
prestige and organizational ethics and virtues of an IPO firm, such that
older IPO firms will be influenced less by UWs than newer IPO firms

12. Model

13. Methodology

14. Methodology
 Sample
• Examined IPOs declared between 2010 and 2012
• 204 final prospectuses IPO firms
• Pulled additional information from SDC database
• Excluded firms with stock listings resulting from mergers or
acquisitions and spin-offs of publicly-listed firms (Moore et al., 2012)
 Why IPOs?
• Entrepreneurial context
• Transitioning period – More open to change
• Obvious powerful stakeholders during the IPO: UWs and VCs

15. Methodology
 Dependent Variable: Organizational Virtue Orientation (OVO)
– Content-analysis measure of OVO developed by Payne and colleagues (2011)
 Six dimensions of organizational virtue:
 Integrity
 Honest, Sincere, Socially-Responsible, Trustworthy
 Empathy
 Concerned, Reassuring, Supportive, Sympathetic
 Courage
 Ambitions, Achievement-Oriented, Leading, Competent
 Warmth
 Friendly, Open, Pleasant, Straightforward
 Conscientiousness
 Reliable, Hardworking, Proud, Secure
 Zeal
 Exciting, Innovative, Imaginative, Spirited
(Chun, 2005)

16. Methodology
 Independent Variable: Venture Capitalist Involvement
 Ownership Equity Proportion (cf. Morris, Watling, & Schindehutte, 2000)
 Independent Variable: Underwriter Prestige
 UW prestige index (Loughran & Ritter, 2004)
 Scale of 0-9
 Moderating Variable: Firm Age
 Firm inception to date of IPO issue

17. Methodology
 Control Variables:
 Firm net proceeds
 Pre-money market valuation
 90-day market valuation
 180-day market valuation
 Risk factors
 % of founder ownership (Pre-IPO)
 % of insider ownership (Pre-IPO)
 CEO Duality
 Founder-CEO
 Board Independence
 Ordinary Least Squares (OLS)
 Widely used and versatile dependence technique, applicable in various
facets of organizational research

18. Results

19. Results
Hypothesis 1 was supported
 VC’s increased level of involvement is associated with OVO
 β = 3.395466*
Hypothesis 2 was supported
 UW’s increased level of prestige is associated with OVO
 β = 598.4934*
Hypothesis 3 was supported
 Firm age moderated the relationship of VC involvement with OVO
 β = 7.006503**
Hypothesis 4 was supported
 Firm age moderated the relationship of UW prestige with OVO
 β = 849.3213**

20. Discussion

21. Discussion
 VCs and UWs value the perception of ethics and virtues in the
IPO process
 Near immediate impact of UWs on a firm’s virtues
 Importance of top-management teams?
 In what other ways do organizational ethics and virtues influence
aspects of the IPO process?
• Higher OVO leads to higher IPO performance (Payne et al., 2013)
• VCs and UWs value the perception of ethics and virtues
 Other orientations?

23. Dimensions Content Analysis Words
Integrity authentic, believable, credible, creditable, decent, devoted, earnest, equitable, ethical, even-handed, fair, faithful,
forthright, genuine, highly-respectable, honest, honorable, ingenuous, law-abiding, lawful, loyal, objective, principled,
resolute, respectable, sincere, socially-responsible, transparent, true, trusted, trustworthy, trusty, truthful, upright,
upstanding, values-based, virtuous
Empathy accepting, aidful, assuring, caring, charitable, compassionate, considerate, empathetic, encouraging, forgiving, helpful,
humane, kind, listening, merciful, patient, ready-to-help, supportive, sympathetic, thoughtful, tolerant, understanding,
well-being
Warmth agreeable, amiable, benevolent, cordial, courteous, diplomatic, familiar, friendly, generous, genial, gracious, grateful,
hospitable, neighborly, open, pleasant, polite, receptive, straightforward, tender
Courage achievement-oriented, adept, aggressive, aspiring, assertive, bold, brave, capable, climbing, competent, courageous,
daring, desirous, determined, effectual, enduring, enterprising, entrepreneurial, exploitative, foremost, goal-oriented,
hardy, heroic, hungry, impenetrable, in-charge, knowledgeable, leading, overcoming, prevailing, ready, self-reliant,
skilled, skillful, staunch, stout, striving, strong, tenacious, topmost, top-ranked, valiant, valorous, willful
Conscientious-
ness
accomplished, accountable, accurate, attentive, at-work, businesslike, bustling, busy, careful, certain, confident,
conscientious, conscionable, Customer-centric, demand-ing, dependable, detailed, diligent, dutiful, effective, efficacious,
efficient, engaged, hard-working, heedful, impressive, judicious, laudable, meticulous, mindful, notable, painstaking,
persistent, planning, praiseworthy, prepared, productive, protected, proud, regardful, reliable, reputable, responsible,
scrupulous, solicitous, stable, stead-fast, steady, thorough, tireless, unfailing, value-added, vigilant, watchful
Zeal alive, anxious, ardent, astonishing, avid, breakthrough, captivating, compelling, creative, dazzling, dogged, dynamic,
eager, electrifying, energetic, enthusiastic, enticing, exceptional, excited, exciting, extraordinary, fabulous, fascinating,
fervent, fiery, gung-ho, impassioned, ingenious, inspiring, intriguing, invigorating, lively, novel, passionate, provocative,
reinvigorated, renewed, resourceful, revolutionary, rousing, spirited, stimulating, stirring, thrilling, transformative,
trendsetting, uncon-ventional, unprecedented, vehement, vigorous, visionary, vivacious, vivid, zealous
Word Lists for Organizational Virtue Dimensions
Organizational Virtue Orientation Word Lists