ABSTRACT
This chapter addresses two specific issues which might be argued to be at the core of the status change at first quotation of the firm’s equity: the evolution of corporate governance, and the maturation of the management systems (including financial systems and controls) of the firm. This research forms part of a study sponsored by the Economic and Social Research Council (ESRC), of the financing behaviour and characteristics of newly quoted firms in the United Kingdom; it follows upon a survey-based study of all new entrants to the London Stock Exchange markets between 1980 and 1985, as reported in Buckland and Davis (1989). The second-stage research reported here, however, utilises 40 case studies of newly quoted firms which have also featured in Chapter 9 of this book. It follows a methodological approach now commonplace in research in finance and accounting, as it has long been in other aspects of business research (Jones 1992; Ryan et al. 1992; Scapens 1990, 1992). The processes by which systems of corporate governance evolve and are developed have attracted increasing attention (Cadbury 1992, for example). This first concern relates to the novel principal-agent relationships erected by outside shareholders and stock exchange oversight (concern expressed in, for example, Charkham 1989; Bank of England 1988; Tricker 1984). The second concern stems from the process of corporate maturation. The mid-sized firm is well known to face difficult periods when its management is mutating from the ‘Type I’, or entrepreneurial focus, to ‘Type II’ (functional or professionalised management), as well as any transition between Type II and a ‘Type III’ (divisionalised) entity (see, for example, Brandt 1981: pp. 7ff; and Kuhn 1989: pp. 114–15). Quotation triggers a change in the firm’s ownership, previously intertwined with management, to that of a new and more complex relationship: with the increase in public obligations and oversight, management must now report and answer to an additional set of principals. The typical newly quoted firm is seeking to sustain a strategy for continued abnormal growth, but it needs to communicate with and demonstrate this to a set of new and more remote principals.
