Abstract

Some of the most highly recognized CEOs were the entrepreneurial creators of their firms. These CEOs distinguished themselves, not only by starting their firms, but also by successfully managing them for long periods of time after they issued initial public offerings (IPOs) and became public. Considering such successes, it seems reasonable to ask the following question: Why do founders have a bad reputation among Venture Capitalists and Investment Bankers? Tashakori (1980) notes that Venture Capitalists realize that they put pressure on founders to leave their CEO positions. However, empirical research supporting the replacement of the Founder is limited. In this research, I examine the effect of replacing the founder with a professional CEO in firms that are issuing an initial public offering on a US stock exchange between 1996 and 2000. It is found that replacing the founder-CEO by a professional results in an increase of, on average, $12 million in the valuation of the issue. (Abstract shortened by UMI.)