Testing a model of reasoned risk-taking: Governance, the experience of principals and agents, and global strategy in high-technology IPO firms

Research on the governance of risky ventures, like the initial public offerings (IPOs) of high-technology firms, has focused primarily on the relationship between governance mechanisms and firm performance. While such an emphasis is clearly important, it does little to shed light on potential relationships between governance and the strategies pursued by risky firms, nor does it take into account the complementary role of key stakeholders in affecting those strategies. To partially remedy this deficit we integrate agency and behavioral perspectives to develop a theory of 'reasoned risk-taking,' whereby the nature of risks undertaken is a consequence of the interaction of governance mechanisms and stakeholder characteristics. We demonstrate our theory by predicting when corporate governance should be associated with strategic risk-seeking beyond a firm's technical core-as seen in the degree to which it has expanded internationally. Surprisingly, even though venture capitalists (VC) are risk specialists, we find that technology-based IPO firms are less likely (i.e., a negative relationship) to have extensive global sales when they are backed by a VC. In support of our reasoned risk-taking theoretical framework, we find that VCs are indeed risk-seeking when VC backing is complemented by the international experience of their board appointees, top management team (TMT) members, or both. IPO firms with significant insider ownership are similarly global risk-seekers, and those effects are strongest with an internationally seasoned board and TMT at the helm. Copyright (C) 2003 John Wiley Sons, Ltd.