Challenging agency theory prescriptions for board composition, we contend that the boards of young firms that have recently gone public are best comprised of a majority of original top management team (TMT) members, rather than independent outsiders.
We argue that such board members possess valuable tacit knowledge of the firms and their entrepreneurial visions and are in the best position to provide oversight. We additionally argue that outsiders should provide resources that firms' TMTs might use to execute their strategies, rather than monitor the TMTs.
Anatomy of an IPO Valuation - WSJ
Our results from 1996-97 data on 524 initial public offerings support our contentions.