off to a good start: The effects of upper echelon affiliations
on underwriter prestige and IPO success"
Gulati, Kellogg School of Management, Northwestern
University, and Monica C. Higgins, Harvard Business School
public offering (IPO) is one of the most critical events
in the lifetime of a young firm. Prior research has shown
that firms tend to have successful IPOs if they go public
with the endorsement of a prestigious lead underwriter.
This article takes one step back from prior research and
examines the antecedents to receiving endorsement by a
prestigious underwriter and links this to the experience
base of a firm’s upper echelon. We theorize that
the amount and type of upper echelon experience serve as
important symbols of a young firm’s legitimacy to
critical outsiders. We introduce a typology of upper echelon
experience that distinguishes between upper echelon upstream,
horizontal, and downstream employment-based affiliations
and suggest that these different types of upper echelon
affiliations allay different types of endorser concerns
regarding firm legitimacy, affecting the endorsement process.
Further, we theorize that the relationships between upper
echelon experience and investment bank prestige will be
moderated by technological uncertainty. As a logical extension
to examining the relationships between upper echelon experience
and underwriter prestige, we examine as well the extent
to which upper echelon experience affects IPO success.
We test our assertions on a comprehensive sample of public
and private biotechnology firms that were founded between
1961 and 1994 and that went public between 1979 and 1996.
Analyses of the five-year career histories of the over
3200 executives and directors that make up the upper echelons
of these firms show that firms with upper echelons with
affiliations with prominent downstream organizations (i.e.,
pharmaceutical and/or healthcare companies) and with prominent
horizontal organizations (i.e., biotechnology companies)
are more likely to attract the endorsement of a prestigious
investment bank. We also find that the greater the range
of upper echelon affiliations across the categories of
upstream, horizontal and downstream affiliations, the more
prestigious the firm’s lead underwriter. And, we
find that these latter results are moderated by technological
uncertainty. Our results on IPO success show that upper
echelon downstream affiliations and range of affiliations
do have some direct effect on IPO success, even after accounting
for the prestige of a firm’s lead underwriter. The
present research has implications for the study of organizational
legitimacy, interorganizational endorsements, and entrepreneurship.
in Organization Science