Entrepreneurial identity and strategic disclosure: Founder CEOs and new venture media strategy

• DOI: http://doi.org/10.1002/sej.1372
• Author: Valerie A. Sy,Michael D. Howard,Johannes Kolb
• Date: 01 March 2021
• Published date: 01 March 2021

RESEARCH ARTICLE

Entrepreneurial identity and strategic disclosure:

Founder CEOs and new venture media strategy

Michael D. Howard

1

| Johannes Kolb

2

| Valerie A. Sy

1

1

Department of Management, Mays Business

School, Texas A&M University, College

Station, Texas

2

Department of Corporate Finance, Institute

of Financial Management, University of

Hohenheim, Stuttgart, Germany

Correspondence

Valerie A. Sy, Department of Management,

Mays Business School, Texas A&M University,

College Station, TX 77843.

Email: vsy@mays.tamu.edu

Funding information

Bundesministerium für Bildung und

Forschung, Grant/Award Number: Thematic

Network Innovation, Entrepreneurship and;

Deutscher Akademischer Austauschdienst;

McFerrin Center for Entrepreneurship, Texas

A&M University, Grant/Award Number: Mays

Business School Grand Challenge Grant

Abstract

Research Summary: New venture leaders play a key role in

crafting media communications to best represent the firm

to the outside world. These decisions and behaviors have

critical implications for performance. Building on entrepre-

neurial identity and strategic disclosure research, we

explore the interplay between founder CEOs and firm

media strategy in their effects on IPO. We use natural lan-

guage processing and textual analysis on a sample of

76,883 press releases, providing insights into the media

communications of founder CEOs of 2,276 US VC backed

high-technology firms during the period from 1985 to

2009. Results suggest that greater volume and use of posi-

tive terms in media statements positively mediate the

effects of founder CEOs, increasing the likelihood of firm

IPO. Our findings offer important contributions to entrepre-

neurship research.

Managerial Summary: The purpose of this article is to

explore how new venture leaders may influence the exter-

nal representation of their startups and subsequently

impact performance outcomes such as IPO. Specifically, we

examine differences between founder CEOs and profes-

sional CEOs in how they personally identify with the ven-

ture, portray the venture in the media, and thus affect the

likelihood of the venture going public, being acquired, or

being liquidated. Through analysis of press release state-

ments of VC-backed high-technology startups, we find that

startups with founder CEOs issue more press release

Received: 18 August 2017 Revised: 5 September 2020 Accepted: 7 September 2020 Published on: 7 October 2020

DOI: 10.1002/sej.1372

© 2020 Strategic Management Society

Strategic Entrepreneurship Journal. 2021;15:3–27. wileyonlinelibrary.com/journal/sej 3

statements, incorporate more positive language in these

statements, and have a higher likelihood of IPO than those

with professional CEOs. These results imply that the media

strategy of founder CEOs may be more beneficial for new

ventures.

KEYWORDS

competing risk models, entrepreneurship, founder characteristics,

IPO, media analysis

1|INTRODUCTION

Prior research on entrepreneurial ventures has identified important differences between founder CEOs and profes-

sional CEOs. On the one hand, original founders contribute the initial inspiration for the venture and are skilled at

recognizing relevant market opportunities, recombining scarce resources, and commercializing the new product or

service offering (Jain & Tabak, 2008; Wasserman, 2003, 2017). On the other hand, professional CEOs hired by ven-

ture capital investors bring important executive experience and human capital to the firm in its critical early stages of

development (Boeker & Karichalil, 2002; Hellmann & Puri, 2002). Ultimately, the choice of leadership for a new ven-

ture influences the likelihood and speed of investment exit through initial public offering (IPO) (Certo, Covin, Daily, &

Dalton, 2001; Nelson, 2003).

While empirical research suggests that retention of founder CEOs may be associated with greater performance

and likelihood of survival(Adams, Almeida, & Ferreira, 2009; Chen & Thompson, 2015; Gimmon & Levie, 2010), prior

work has not adequately addressed the mechanisms by which original founders influence firm outcomes through

their decisions and behavior. In the critical early stages, new venture leaders face important decisions on how to por-

tray their firms to outside stakeholders. Seeking to gain legitimacy and resolve key information asymmetries that

may impede access to investment, entrepreneurial leaders can strategically disclose information and frame rhetoric

about the firm's activities in the media (Lougee & Marquardt, 2004; Pan, Li, Chen, & Chen, 2020; Petkova, Rindova, &

Gupta, 2013). Managing the visibility and reputation of the new venture in the external environment can, in turn,

impact firm outcomes such as issuing an IPO (Pollock & Rindova, 2003).

We suggest that it is crucial to understand how key differences between founder CEOs and professional CEOs

have unique effects on media strategy—the active representation of the firm in the external environment—and the

subsequent completion of an IPO. New venture founders may identify more closely with their entrepreneurial role

and the success of the organization (Dobrev & Barnett, 2005; Navis & Glynn, 2011) and bring more passion to their

work, leading them to be more persistent and effective in pursuing entrepreneurial opportunities (Cardon, Wincent,

Singh, & Drnovsek, 2009). Greater activity and enthusiasm of founder CEOs as media champions for their firms may

send a stronger message to external stakeholders, controlling the information that is available to potential investors

or acquiring firms and enhancing the prospects for successful outcomes. Strategy and entrepreneurship research can

gain from a greater understanding of whether founder CEOs may leverage these characteristics to more effectively

act as external advocates of their ventures, promoting firm success.

In our study, we address the following research question: how does the retention of founder CEOs influence

media strategy and, in turn, the completion of an IPO? We draw from theories of organizational identity and strategic

disclosure to develop a framework to explain the effect of founder CEOs on new venture press releases, with

corresponding benefits to the firm. We examine the research question by using a sample of 2,276 VC-backed US-

technology firms that were founded between 1985 and 2000. Our final sample includes 15,349 firm-years and

4HOWARD ET AL.