The influence of top management team heterogeneity on the capital raised through an initial public offering.

Results of this study provide some implications for firms planning an IPO. In preparing for an IPO, firms may do well to structure their TMT so as to indicate to investors the breadth of perspective of the TMT. Specifically, functional background and educational background are predicted to benefit the amount of capital the firm raises at IPO. Investors often invest in the TMT. A team that provides evidence of strength in managing its firm because it has a broad perspective is an attractive investment opportunity. In addition to heterogeneity I found support to predict that IPO firms that go public in a more established industry and during a hot market with a larger team, have higher sales prior to IPO, have a reputable underwriter, and with backing by reputable VC firms, will raise more capital from an IPO, while having a team that worked together for a longer period of time will raise less capital.

Limitations of this study include the focus on a single industry, a sample of IPOs that went public during a period of increasing IPO activity, limited measures of performance and heterogeneity, no available data on the team member exits, and the possibility of endogenous variables. Although there are advantages to focusing on a single industry, the unique characteristics of software firms may have influenced the results of this study and so limit the generalizability of the results to firms outside the software industry. Insight into the influence of TMT heterogeneity of IPO firms would benefit from future research on other industries. This study examines firms that went public during a period of increasing IPO activity, and so the relationships found in this study may not be generalizable to all time periods. During the period covered by this study, 3,113 firms (from all industries) went public, http://www.marketdata.nasdaq.com/asp/Sec3IPO.asp. However, there was a variation in the number of IPOs by year, with a greater number of IPOs in 1993 and 1996. It is important to note that prior to 1993, the software industry was in its early stage; an SIC code had only been assigned for software firms in 1987. Following the last year covered in this paper, 1997, the IPOs of Internet-based firms dramatically caused an increase in the number of firms that went public. The burst in the Internet bubble then caused a significant decrease in the number of IPOs. Performance was measured in terms of capital raised through an IPO. Future research could consider other measures of performance in determining the value given by investors to heterogeneity such as underpricing and other stock-based/market-based measures of performance. The measures of heterogeneity used in this study are also limited in scope and may be considered simplistic proxies for concepts such as breadth of perspective and worldview. They do not measure the degree and nature of conflict between members, aspects of TMTs known to influence decision making and firm performance. More detailed measures of heterogeneity such as worldview, strategic orientation, and goal orientation may provide greater insight into the influence of the TMT on firm performance. In addition, I did not have available data on exits of team members. Thus, I was unable to determine the signals provided by the exits of team members (Ucbasaran et al., 2003) and the influence on heterogeneity. Finally, there is the possibility of endogenous variables in the model. TMT heterogeneity may be influenced by another variable, a variable that is also related to the ability of the firm to raise capital through an IPO. For example, IPO firms with greater capital-raising prospects may be more able to attract resources and so afford to build a more heterogeneous and larger TMT. In addition, the positive relationship between IPO capital raised and hot market may be due to the hot market driving the decision to go public at a specific time. Future research may benefit from the examination of a firm's resources, e.g., intellectual capital, prior to the creation of the complete management team, as well as a hot market driving the decision as to when to go public.

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