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Principal Costs in Initial Public Offerings
Author(s) -
Dalziel Thomas,
White Robert E.,
Arthurs Jonathan D.
Publication year - 2011
Publication title -
journal of management studies
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 4.398
H-Index - 184
eISSN - 1467-6486
pISSN - 0022-2380
DOI - 10.1111/j.1467-6486.2010.01005.x
Subject(s) - principal (computer security) , corporate governance , initial public offering , limiting , principal–agent problem , business , agency cost , agency (philosophy) , control (management) , stock (firearms) , accounting , public relations , industrial organization , economics , finance , shareholder , management , political science , sociology , mechanical engineering , social science , computer science , engineering , operating system
The initial public offering (IPO) of a new venture's stock often results in significant changes to the firm's ownership structure. Because firm owners (principals) often have heterogeneous interests, conflicts can arise among the principals. While governance mechanisms are often effective in limiting agency problems, we suggest that principals can also attempt to use governance mechanisms to their own advantage in IPO settings. Specifically, when principal–principal conflict exists, powerful principals may exert control via governance mechanisms to pursue their own interests in ways that create inefficiencies in the form of ‘principal costs’.