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Managerial Stability and the Pricing of New Equity Issuances: The Effects of State Enforcement of Noncompetition Agreements

TitleManagerial Stability and the Pricing of New Equity Issuances: The Effects of State Enforcement of Noncompetition Agreements
Publication TypeJournal Article
Year of Publication2017
AuthorsUniversity), Y-chiLiao (West, Institute), BFrancis (R, Australia), IHasan (For, Technology), HWang (Illi
JournalInternational Review of Entrepreneurship (IRE)
Volume15
Issue2
Start Page131-150
Date Published06/2017
Other NumbersIJEE 1649-2269 and IRE 2009-2822
Keywordsmanagerial stability, new equity issuances, noncompetition agreements
Abstract

In this paper, we empirically investigate the relationship between managerial stability induced by the legal enforcement of noncompetition agreements and the pricing of new equity issuances. Making use of the variation in the enforceability of noncompetition contracts across states in the U.S., we find that managerial stability is negatively related to underpricing and price revision for our sample of new equity issuing firms. Our results demonstrate that the stability of management is important for an issuing firm to convey its intrinsic value credibly to the market.

URLhttp://www.senatehall.com/entrepreneurship?article=569
Alternate JournalInternational Journal of Entrepreneurship Education (IJEE)