The effects of demand, competitive, and technological uncertainty on board monitoring and institutional ownership of IPO firms

This paper considers industry-specific contingencies that may account for some of the inter-firm heterogeneity in the deployment of specific corporate governance mechanisms in IPO firms. We examine how differences in demand, competitive, and technological uncertainty in the industry influence the levels of IPO firm monitoring by board outsiders and institutional investors. We test our theory using a sample of U.S. firms that completed an IPO in 24 manufacturing industries. The results indicate that industry uncertainty is, indeed, significantly related to the use of corporate governance mechanisms. In particular, the empirical results indicate that industry effects on IPO firm board monitoring and institutional investor ownership are the strongest and most consistent for demand uncertainty and competitive uncertainty.