By Dirk Schiereck *
(exechange) — October 1, 2019 — The number of exchange-listed companies in Germany has been declining for decades and is today nearly 40% below the level of 1950.
To understand why this development is so extreme in Germany, our study (1) comes up with a new explanation. CEOs of German privately held firms are often too old to go public.
Studies from the U.S. (2) and Italy (3) gave first indications that there is a critical correlation between the career horizon of CEOs and the decision to go public.
Older CEOs are on average more risk averse, and the decision to initiate a stock exchange listing bears a lot of uncertainty.
Based on a data set of 59 companies that completed their IPO in Germany between 2005 and 2018, we document new evidence that there is a statistically significant negative influence of the CEO’s career horizon on the period between the company’s foundation and its IPO.
Younger CEOs bring their companies to the stock market sooner than older top managers.
This effect has been even more accentuated in recent years and within the subsample of the 50% youngest CEOs.
(1) Dietzel, Manuel; Schiereck, Dirk (2019): Das Alter des Vorstandsvorsitzenden und die Entscheidung zum Börsengang in Deutschland. Working Paper, Technische Universität Darmstadt.
(2) Yang, Qin; Zimmerman, Monica; Jiang, Crystal (2011): An Empirical Study of the Impact of CEO Characteristics on New Firms’ Time to IPO. In: Journal of Small Business Management, 49 (2), pp. 163-184.
(3) Romano, Mauro; Cirillo, Alessandro; Mussolino, Donata; Pennacchio, Luca (2019): CEO career horizons and when to go public: the relationship between risk-taking, speed and CEO power. In: Journal of Management and Governance, 23 (1), pp. 139-163.
* The writer is a professor of Corporate Finance at the Technische Universität Darmstadt.
Editor’s note: This is a guest post.