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The entrepreneurial growth ceiling: Using people and innovation to mitigate risk and break through the growth ceiling in initial public offerings

Theresa M. Welbourne (Department of Management, University of Nebraska – Lincoln, Lincoln, Nebraska, USA and Center for Effective Organizations, University of Southern California, Los Angeles, California, USA)
Heidi Neck (Blank Center for Entrepreneurship, Babson College, Babson Park, Massachusetts, USA)
G. Dale Meyer (Department of Management, University of Colorado, Boulder, Colorado, USA)

Management Decision

ISSN: 0025-1747

Article publication date: 25 May 2012

Abstract

Purpose

In this paper the authors aim to introduce a concept that they call the “entrepreneurial growth ceiling” (EGC). They develop arguments that new venture IPOs hit the EGC prior to their IPO, and the ceiling is part of the impetus for going public. The paper argues that proceeds from the IPO will aid firms in breaking through the ceiling if the proceeds are strategically allocated.

Design/methodology/approach

The study examines a cohort of firms that went public in the same year. The authors code data from the prospectuses of 366 organizations, including how proceeds were to be spent, and then add performance data post‐IPO.

Findings

The results from a longitudinal study of IPOs indicate that firms that allocate proceeds to human resources and innovation (research and development) are more likely to break through the EGC quickly and enhance long‐term stock performance.

Practical implications

Entrepreneurial firms will have higher success when investing money into their human resources (people) and in research and development (innovation). Given the current high rate of change in business, the authors expect these findings are even more relevant for not just IPOs but for all organizations going through change.

Social implications

Organizations that support and fund entrepreneurship and new venture growth should consider expanding their training to include human resource management, in particular as it ties to innovation.

Originality/value

The entrepreneurial growth ceiling is a new concept introduced in this paper. This research has important implications for IPOs and other high‐growth organizations.

Keywords

Citation

Welbourne, T.M., Neck, H. and Dale Meyer, G. (2012), "The entrepreneurial growth ceiling: Using people and innovation to mitigate risk and break through the growth ceiling in initial public offerings", Management Decision, Vol. 50 No. 5, pp. 778-796. https://doi.org/10.1108/00251741211227474

Publisher

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Emerald Group Publishing Limited

Copyright © 2012, Emerald Group Publishing Limited