The Determinants of Board Structure at the Initial Public Offering

This paper describes board size and composition and investigates the role of venture capital in a sample of 1,116 firms' initial public offerings. First, firms backed by venture capital have fewer insider and instrumental directors and more independent outsiders. Second, we consider board composition as the outcome of a bargain between the CEO and outside shareholders. Representation of independent outsiders on the board decreases with the power of the CEO--tenure and voting control--and increases with the power of outside investors--venture capital backing and venture firm reputation. Third, within the sample of firms financed by venture capital and also consistent with a bargaining model, the probability that a founder remains as CEO is decreasing in venture firm reputation. Finally, we examine the influence of venture capital backing and board structure on firm outcomes in the 10 years after the initial public offering.