Boards of directors and audit committees in initial public offerings

This study contributes to the corporate governance literature by examining board and audit committee characteristics and firm performance in the building of new companies. Prior research (Agrawal & Knober, 1996; Boyd 1995) mainly focuses on large established companies. Board characteristics include: board quality (i.e., board expertise and educational background) and venture capitalists (i.e., the percentage of venture capitalists on the boards). Audit committee characteristics include: independence, financial expertise and activity. I investigate 226 U.S. firms making initial public offerings from 2000 to 2002 before the Sarbanes-Oxley Act became effective.; Examining the regression models that control director and firm characteristics, I find that there is a positive relationship between board quality and firm performance. However, there is no evidence that venture capitalist directors are positively associated with firm performance.; The Sarbanes-Oxley mandates that the audit committees of listed companies consist entirely of independent directors and must disclose that it has at least one member with financial expertise. I find no association between audit committee independence and firm performance. As expected, firm performance increases with audit committee financial expertise. However, there is no evidence that there is a positive relationship between audit committee activity and firm performance.; It is well documented that IPO firms suffer from long-term underperformance. This study finds that the better quality of the board of directors shapes the board to enhance monitoring effectiveness for IPO firms. This study also finds that post-IPO long-term performance increases with financial experts on their audit committees. Therefore, these findings suggest that sound corporate governance practices are positively associated with post-IPO performance.