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Puttin' on the Ritz: pre-IPO enlistment of prestigious affiliates as deadline-induced remediation

Author: Chen, Guoli ; Hambrick, Donald C. ; Pollock, Timothy G.INSEAD Area: StrategyIn: Academy of Management Journal, vol. 51, no. 5, October 2008 Language: EnglishDescription: p. 954-975.Type of document: INSEAD ArticleNote: Please ask us for this itemAbstract: In preparing for their IPOs, firms have incentives to enlist prestigious affiliates to signal their quality. We describe two theoretical mechanisms for explaining the amount and pace of prestige-enhancement that a firm engages in during the year leading up to an IPO, as well as the costs involved. The “snowball model” represents our consolidated portrayal of some well-known processes that cause those organizations that already have the most prestige to steadily accumulate even more. The “dressing-up model” is built upon a phenomenon that has not been studied in the macro-organizational context: deadline-induced remediation. Examining final-year hiring of prestigious executives and directors in a sample of 242 software IPOs, we find that the snowball model substantially explains final-year prestigious hiring. But there is also strong evidence of a tandem dressing-up process. As the final year counts down, prestige-scarce firms engage in aggressive hiring of prestigious executives and directors, and they pay a relatively higher price in doing so
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In preparing for their IPOs, firms have incentives to enlist prestigious affiliates to signal their quality. We describe two theoretical mechanisms for explaining the amount and pace of prestige-enhancement that a firm engages in during the year leading up to an IPO, as well as the costs involved. The “snowball model” represents our consolidated portrayal of some well-known processes that cause those organizations that already have the most prestige to steadily accumulate even more. The “dressing-up model” is built upon a phenomenon that has not been studied in the macro-organizational context: deadline-induced remediation. Examining final-year hiring of prestigious executives and directors in a sample of 242 software IPOs, we find that the snowball model substantially explains final-year prestigious hiring. But there is also strong evidence of a tandem dressing-up process. As the final year counts down, prestige-scarce firms engage in aggressive hiring of prestigious executives and directors, and they pay a relatively higher price in doing so

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