Top management team tenure and technological inventions at post-IPO

biotechnology rms
Kun Liu
a,
, Jun Li
b, 1
, William Hesterly
c, 2
, Albert Cannella Jr.
d, 3
a
Department of Management and Information Systems, Wayne State University, Detroit, MI 48202, United States
b
Department of Management, University of New Hampshire, Durham, NH 03824, United States
c
Department of Management, University of Utah, 1645E Campus Ctr. Dr. Salt Lake City, UT84112, United States
d
Goldring-Woldenberg Hall, 7 McAlister Drive, Tulane University, New Orleans, LA 70118, United States
a b s t r a c t a r t i c l e i n f o
Article history:
Received 1 August 2010
Accepted 25 September 2011
Available online 19 October 2011
Keywords:
TMT
Organization life cycle
Technological invention
Entrepreneurship
We examine how top management teams (TMTs) facilitate invention performance. We test our hypotheses
with a sample of 185 biotech rms that issued initial public offerings (IPOs) between 1980 and 1997. We predict
that the percentage of founders on TMT has an inverted U-shaped relationship with invention performance.
Average intrarm tenure will be negatively associated with invention performance and average TMT member
experiences from competitors or outside the industry will be positively associated with invention performance.
Finally, contextual factors such as rm size and rm age moderate the impact of TMT experiences on invention
performance.
2011 Elsevier Inc. All rights reserved.
1. Introduction
Top management teams have attracted research attention as an
antecedent of organizational outcomes. Researchers using the upper
echelons perspective (Hambrick & Mason, 1984) have shown top
managers have a signicant impact on a variety of organizational
outcomes, such as strategic change (Barker & Barr, 2002; Musteen,
Barker, & Baeten, 2006), rm growth (Kor, 2003; Stam & Elfring,
2008), search (Papenhausen, 2010), acquisition performance (Walters,
Kroll, & Wright, 2007), and innovation (Alexiev, Jansen, Van Den Bosch,
& Volberda, 2010; Elenkov, Judge, & Wright, 2005; Smith & Tushman,
2005; Vaccaro, Jansen, Van Den Bosch, and Volberda, forthcoming;
Wu, Levitas, & Priem, 2005).
While much research has focused on established public rms, less
research has examined the unique context of a newly public rm. The
initial public offering (IPO) is an important milestone in an entrepre-
neurial rm's life cycle (Carpenter, Pollock, & Leary, 2003; Filatotchev
& Piesse, 2009). The post-IPO rm is unique because it has already
laid foundations for further development, unlike the early-stage rm
that prioritizes on survival amid high uncertainties. At the same time,
its legitimacy is lacking and its technological and market base are yet
to grow(Filatotchev &Piesse, 2009). The post-IPOrmfaces transitional
challenges such as liability of adolescence (Hannan, 1998).
The post-IPO TMT is in a unique position relative to their peers at
either an early-stage rm or a well-established public rm. The TMT
oftencontinues to be inuenced by a sizable presence of founders, rarely
seen in a mature public rm; it has also included external managers
who established their career paths elsewhere to enrich the experiences
of the TMT, whichdoes not happento the early-stage rmthat primarily
relies on founders. The TMT in the post-IPO rm becomes the locus
where external and internal managerial experiences are brought
together, with far-reaching implications.
We examine the role of TMT using an organizational life cycle per-
spective (Kazanjian, 1988; Smith & Miner, 1983). We focus on multi-
ple aspects of top managers' experiences such as founder percentage,
intrarm tenure, competitor tenure and outside industry tenure that
may better respond to the stage-specic organizational challenges.
First, we propose founders' presence has aninverted U-shaped relation-
ship with the rm's patented inventions. Second, we predict that
shorter intrarm tenure, more experiences at competitors (i.e., other
rms in the same industry), and more experiences from outside the
industry would enhance invention performance. Finally, we highlight
organizational contexts and predict that rm age and rm size mod-
erate the relationship between external experiences and invention
performance. We test our hypotheses with a sample of 185 biotech-
nology rms that undertook IPOs between 1980 and 1995. We con-
clude the paper by discussing the implications of our results.
2. Theoretical background and research hypotheses
The upper echelons research suggests that top managers' personal
characteristics have an important impact on rm performance
Journal of Business Research 65 (2012) 13491356
Corresponding author. Tel.:+1 313 577 4495.
E-mail addresses: k.liu@wayne.edu (K. Liu), Jun.li@unh.edu (J. Li),
Bill.hesterly@utah.edu (W. Hesterly), acannell@tulane.edu (A. Cannella).
1
Tel.: +1 603 862 3365.
2
Tel.: +1 801 581 6378.
3
Tel.: +1 504 247 1288.
0148-2963/$ see front matter 2011 Elsevier Inc. All rights reserved.
doi:10.1016/j.jbusres.2011.09.024
Contents lists available at SciVerse ScienceDirect
Journal of Business Research
(Hambrick & Mason, 1984). The knowledge and prior experiences of
senior executives affect decisions about internal resource allocations
(Burgelman, 1991; Noda & Bower, 1996). The inuence of TMT
knowledge and experiences is likely to be strong in the post-IPO
rm. The post-IPO rm differs from both a mature public rm and
an early-stage rm in three ways. First, the post-IPO rm faces a bigger
community of stakeholders whose demands may inuence its strategies
because it now has a more dispersed owner group (Ritter & Welch,
2002). The post-IPO rm needs to report nancial data on a quarterly
basis as well as follow strict regulations from the Stock Exchange
Commission (Levesque, Joglekar, & Davies, forthcoming). In contrast,
an early-stage rm is relatively free from external pressures while a
mature public rm is more experienced with stakeholders.
Second, the stricter scrutiny of stakeholders affects some internal
changes at the post-IPO rm. R&D activities at the post-IPO rm are
more result-oriented and need to deliver tangible products within a
shorter timeframe (Hine & Kapeleris, 2006). The post-IPO rm can no
longer focus on pursuing blue-sky research that emphasizes scientic
merits over commercial value, like in an early-stage rm (Hine &
Kapeleris, 2006). The post-IPO rm can utilize the capital gained
from IPO and start to grow its technological and marketing capabilities
whereas the early-stage rm has to prioritize on survival and has no
roomfor strategic maneuvering. The post-IPOrmcanbe more effective
than a mature public rm in utilizing resources towards R&D and
marketing (Levesque et al., forthcoming).
Third, the post-IPOrmis at a stage to deliver reliable organizational
outcomes. The demands from external stakeholders require a more
stable organization that can maintain a reliable track record (Hannan
& Freeman, 1984), with more routines and clearer internal divisions
of labor. Although the rm is already more professionalized than
the early-stage rm, its internal organization and external legitimacy
are still yet to be developed relative to mature, public corporations
(Filatotchev and Piesse, 2009). These unique characteristics of
stakeholders, tasks, and internal organization require managers at the
post-IPO rm to possess appropriate experiences.
An entrepreneurial rm's initial knowledge can no longer satisfy
the fast-growing demands at the post-IPO stage and new knowledge
and skills are needed (Nelson, 2003). With the changes of the rm's
dominant problems (Kazanjian, 1988) such as the lack of legitimacy
and internal specialization, adding new knowledge and experiences at
the TMT provides an important solution. We next unpack the broad
concept of TMT tenure into founder-based, intrarm, competitor-
based and outside industry tenure and consider the impact of different
dimensions of TMT characteristics on invention performance.
2.1. Founders
Founders are those executives who have been with the rm since
its inception and some founders may remain in the post-IPO TMT. In
science-based industries such as the biotechnology industry, founders
often come fromthe academia and start the entrepreneurial rmwith
their knowledge of fundamental science, which is often tacit and
resides only in the minds of founders (Hine & Kapeleris, 2006).
These founders are usually successful in their scientic career rst and
then seek to commercialize inventions in the entrepreneurial rm
(Knockaert, Ucbasaran, Wright, & Clarysse, 2010). The entrepreneurial
rm gradually consolidates the tacit science-based knowledge of
founders into intellectual capital and later intellectual properties such
as patents (Hine & Kapeleris, 2006). Founders are critical to getting
the rm to a competitive start in terms of invention performance.
Their knowledge continues to be important and their presence on the
TMT would be helpful to preserve the scientic edge.
Too high a percentage of founders on the TMT can also cause
problems. In the increasingly complex task and stakeholder environ-
ments of the post-IPO rm, founders' original skill sets are inadequate
and an overly strong presence of founders does not help to address
new challenges (Nelson, 2003). A higher percentage of founders on
the TMT will tilt the power balance towards founders, and in turn
the post-IPO TMT may continue to direct the rm's limited resources
toward fundamental research. At the post-IPO stage, however, the
emphasis of research should be on moving existing research to the
next step and reaping benets from prior blue-sky research. Therefore,
we expect that the percentage of founders on the TMT would be helpful
but when the percentage gets too high, it could be detrimental to
invention performance.
H1. The percentage of founders on the TMT will have an inverted U-
shaped (curvilinear) relationship with post-IPOinvention performance.
2.2. Intrarm tenure
Longer tenured executives have developed their experiences in the
early-stage rm and those experiences may become an impediment
when the post-IPO rm is experiencing fundamental changes
(Hambrick & Fukutomi, 1991; Musteen et al., 2006). Longer tenured
executives are often more committed to existing projects and
practices (Katz, 1982). They may be more committed to the status quo
and less adaptable to changes (Boeker, 1997; Hambrick, Geletkanycz,
& Frederickson, 1993). The experiences needed for growing the
post-IPO rm's research pipeline and delivering the results regularly
differ greatly from those of helping an early-stage rm to survive
(Smith & Miner, 1983). An early-stage biotechnology venture, for
example, may survive on winning a few research grants that
cover the initial exploration for a short time, which is very different
from moving the drug design through experiments and regulation
(Robbins-Roth, 1999). Longer tenured executives often lack the
knowledge for further development and commercialization, especially
when the rm is experiencing radical changes regarding stakeholders,
task, and internal organization. Therefore,
H2. The average of TMT members' tenure within the focal rm will
be negatively related to post-IPO invention performance.
2.3. Competitor tenure
Managers withexternal experiences canoftenenrichthe knowledge
sets of the TMT, particularly under the post-IPO context. Managers may
have worked for competitors who faced the similar supply and demand
conditions of the same industry. Some competitors may have already
experienced the same challenges as the post-IPO rm, such as the
stakeholder, task, and organizational challenges. Managers with
prior experiences at competitors can be particularly helpful for
transferring directly relevant knowledge in those regards (Kor &
Misangyi, 2008). For example, in biotechnology industry, managers
with competitor experiences may be more knowledgeable about
balancing blue-sky research with development-oriented projects and
they can help the rmbecome more strategic in R&D(Hine & Kapeleris,
2006).
H3. The average of TMT members' tenure with competitors will be
positively related to post-IPO invention performance.
2.4. Outside industry tenure
Managers who have work experience from outside industries can
also enrich the post-IPO TMT. They are often functional specialists
with signicant administrative skills and knowledge. While their
knowledge may not be directly related to specic R&D issues, they
add to the depths of organizational knowledge and free founders and
other technologically oriented executives from those administrative
tasks that can be time-consuming and even distracting. For example,
Knockaert et al. (2010) found that commercial expertise and mindsets
1350 K. Liu et al. / Journal of Business Research 65 (2012) 13491356
are required for successfully commercializing academic knowledge in
their study of academic entrepreneurs. Similarly, Brinckmann, Salomo,
andGemuenden(2011) showthat nancial management competencies
are critical for growth at entrepreneurial rms.
H4. The average of TMT members' tenure outside the focal industry
will be positively related to post-IPO invention performance.
2.5. Organizational context as moderators
In the following discussion of organizational contextual factors as
moderators, we focus on external experiences instead of internal
experiences because internal experiences from founders and intrarm
experiences cannot generate benets of legitimacy and organizational
development. Internal experiences are oftenrm-specic andtechnology
oriented. Internal experiences would have no effects on the rm's
legitimacy or administrative infrastructure whereas external experiences
are mainly effective on those aspects.
While external experiences may bring in benets to the post-IPO
rm, such benets vary when organizational contextual factors such
as rm age and rm size are different. Older rms tend to have
more legitimacy because they have developed a longer track record
of managing their inventions and delivering results, achieving certain
degrees of reliability and accountability (Hannan & Freeman, 1984).
While competitor experiences can enhance the post-IPO rm's
relationships with customers and suppliers, these benets would
be smaller when the rm is older and has better track records with
those stakeholders. Similarly, we would expect legitimacy benets
of hiring experts from outside industries, who add to the rm's
functional expertise, would be smaller when older rms have
more established legitimacy.
H5a. Firm age will negatively moderate the effects of average TMT
tenure with competitors on post-IPO invention performance.
H5b. Firm age will negatively moderate the effects of average TMT
outside industry tenure on post-IPO invention performance.
Firmsize also moderates the effects of external experiences, but in a
different way. Larger rms have more complex organization due to the
division of labor, internal coordination, and horizontal differentiation
(Paulson, 1980). Larger rms require more attention and experiences
from managers due to the increased administrative intensity (Pondy,
1969; Vaccaro et al., forthcoming). Although external experiences of
top managers add value such as competitors' industry-specic
know-how and outside managers' functional expertise, their
value-added would be moderate for larger rms where there already
exist more sophisticatedorganizational andadministrative architecture.
By contrast, smaller rms may benet more from external managers to
build a higher degree of internal specialization and some hierarchical
structure of authority.
H6a. Firm size will negatively moderate the effects of average TMT
tenure with rival rms on post-IPO invention performance.
H6b. Firm size will negatively moderate the effects of average TMT
outside industry tenure on post-IPO invention performance.
3. Methods
3.1. Sample
We focused on the biotechnology industry because it is driven by
patented inventions. Our sample consists of biotechnology companies
that experienced IPOs between 1980 and 1997. Following prior litera-
ture, the TMT is dened as corporate ofcers, including the chief execu-
tive ofcer, chief operating ofcer, and vice presidents (Finkelstein &
Hambrick, 1996). We collected TMT demographic information to con-
struct independent variables from 231 IPO prospectuses collected
from Thomson Research. After deleting observations with missing
values including nancial and patent data, we tested our hypotheses
on a sample of 185 public biotechnology rms.
Our study covers the rst three post-IPO years and we collected
patents the sample companies applied within those years and were
successfully granted. We used the time window of three years to
allow TMT characteristics to affect rm outcomes because three
years are sufciently long for TMT characteristics to have effects and
not too long to allow noises to interfere with outcomes, which is
consistent with current TMT research (Carpenter & Sanders, 2002;
Marcel, 2009). All independent variables are captured at the time of
the IPO, while data for dependent variable are gathered in the post-
IPO period to allow temporal precedence of independent variables
and enhance causality in our empirical tests.
We used patent data to construct our dependent variables because
patents are tangible manifestations of technological inventions. The
issuance of a patent indicates that the knowledge behind it (1) is
novel and not anticipated by current knowledge; (2) can potentially
provide economic benets to society; and (3) is non-obvious. Therefore,
patents provide useful information about the invention performance
of the rms. In the biotechnology industry, patents are particularly
important because they confer property rights and signal rm-level
technological capabilities (Wu et al., 2005). Most biotechnology
rms at IPO have yet to develop new products, which makes patents
more appropriate for examining inventions in the biotechnology
industry. All patent data were gathered from the United States Patent
and Trademark Ofce (USPTO) and the National Bureau of Economic
Research (NBER) (Hall, Jaffe, & Trajtenberg, 2005).
3.2. Measures
3.2.1. Dependent variable
3.2.1.1. Citation-weighted patents. We measured the total number of
patents, weighted by external citations. Patent applications build on
previous knowledge, and typically cite previous patents to clarify
the extension of prior-art knowledge. Because citations received by
the patent indicate the patent's impact, citation-weighted patent
counts are superior to un-weighted patent counts because they better
capture technological impact (Hall et al., 2005; Sampson, 2005;
Trajtenberg, 1990). We rst identied all patents awarded to the
rm in the rst three years following the IPO and then counted the
total number of citations that the patent garnered in the rst four
years since the application of the patents. The four-year limit avoids
truncation issues associated with citation data (Hall et al., 2005; Phene,
Fladmoe-Lindquist, & Marsh, 2006) and the window of citations was
limited to four years since application because Jaffe, Trajtenberg, and
Henderson (1993) showed citations typically peak within a few years
after application. We excluded self-citations to better capture the
patents' technological importance to the technological eld.
3.2.2. Independent variables
3.2.2.1. TMT founder percent. This variable measures the percentage of
the TMT members who were founders at the time of the IPO. Founders
are those executives whose names are identied as founders in the IPO
prospectus. This variable captures to what extent founders' experiential
knowledge are preserved within the TMT (Kor, 2003). The percentage
measure also controls for the size of the team and measures the extent
of founders' inuence on the TMT.
3.2.2.2. TMT average intrarm tenure. This variable captures the average
number of years for how long TMT members had worked for the
company at the time of the IPO.
1351 K. Liu et al. / Journal of Business Research 65 (2012) 13491356
3.2.2.3. TMT average competitor tenure. This variable captures the
average number of years for how long TMT members had worked
for competitors, i.e., in other biotechnology or pharmaceutical
rms.
3.2.2.4. TMT average outside industry tenure. This variable captures the
average number of years for how long TMT members had worked in
other industries than biotechnology or pharmaceuticals.
3.2.3. Moderating variables
3.2.3.1. N of employees. This variable controls for rm size. Because
most biotech rms have zero or modest sales at IPO, the number of
employees measures rm size better than sales or assets. We
log-transformed the measure to reduce skewness of the data (Miller
& Droge, 1986). As presented in the descriptive statistics later
(Table 1), an average rm has about 39 persons and the size of
most sample companies (68%) ranges from 14 employees to 111
employees, consistent withconventional understanding of organizational
conditions of biotechnology rms at IPO (Robbins-Roth, 1999). The
variance suggests most sample companies are small- or medium-size
companies, with a few of them more developed.
3.2.3.2. Firm age. This variable represents the number of years that
passed between a rm's founding and its IPO. The descriptive statistics
suggest the average age of sample companies is 4.75 years, consistent
with similar studies on high-tech IPO rms such as Carpenter et al.
(2003), with most sample companies at the adolescent stage of their
life cycle.
3.2.4. Control variables
3.2.4.1. TMT average age. We controlledfor average age of TMT members
at IPO because research shows a younger TMT is more receptive to new
information and can be more adaptive to change (Wiersema & Bantel,
1992).
3.2.4.2. TMT size. The count of individuals on the TMT at the time of the
IPO. Researchsuggests larger TMTs provide wider sets of knowledge and
experiences in decision-making (Eisenhardt & Schoonhoven, 1990).
3.2.4.3. TMT functional diversity. We used Blau's index to account for
heterogeneity of functional backgrounds of TMT members at the
time of the IPO (Bantel & Jackson, 1989; Musteen et al., 2006). Teams
with more diverse functional backgrounds can be more innovative
(Cannella, Park, & Lee, 2008). This variable measures the diversity of
different functions such as marketing, nance/accounting, R&D,
operations, and administration, etc.
3.2.4.4. TMT doctorate percent. We measured the percentage of top
managers who possess advanced degrees such as PhDs and MDs at
IPObecause advanceddegrees among TMT members suggest specialized
knowledge that can be relevant for invention.
3.2.4.5. TMT previous jobs. We measured the average number of
companies that TMT members had previously worked for at IPO.
Research shows top managers with broader job experiences tend
to have stronger social networks (Eisenhardt & Schoonhoven, 1990),
which may affect invention. Again, information of previous jobs was
collected from IPO prospectuses.
3.2.4.6. R&D intensity. We used this variable to control for the intensity
of R&D efforts. We measured this variable by dividing R&D expenses
over total assets (Wu et al., 2005).
Prior research has indicated that the backward search process
can affect the forward citations received by patented invention
(Ahuja & Lampert, 2001; Argyres & Silverman, 2004; Hall, Jaffe, &
Trajtenberg, 2001). We created three variablesrm originality,
rm pioneering technologies, and average citation age.
3.2.4.7. Firm originality. Originality gages the novelty of technological
combination in backward search (Argyres & Silverman, 2004; Hall
et al., 2001), and is calculated as follows: Firm originality=1
n
i
j
s
2
ij
Where s
ij
denotes the proportion of citations made by patent i that
belongs to class j, out of n
i
technological classes assigned to patents
Table 1
Correlations.
Variable Min Max Mean Std
Dev
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
1. Citation-weighted
patents
0 57 11.04 14.18
2. TMT founder% 0 0.75 0.19 0.26 .02
3. TMT founder% squared 0 0.56 0.06 0.12 .13 .76
4. TMT avg intrarm
tenure
0 13.5 2.71 1.71 .02 .02 .06
5. TMT avg competitor
tenure
0 26 6.06 3.93 .03 .10 .00 .04
6. TMT avg outside
industry tenure
0 22 1.87 2.22 .03 .06 .05 .07 .39
7. TMT average age 31.3 63 43.87 4.35 .07 .06 .10 .12 .40 .15
8. TMT size 1 14 4.46 2.03 .25 .16 .23 .20 .01 .01 .10
9.TMT functional diversity 0 0.8 0.57 0.18 .21 .04 .18 .15 .05 .06 .04 .44
10. TMT doctorate% 0 1 0.4 0.29 .11 .06 .07 .10 .07 .27 .13 .12 .25
11.TMT avg number of
previous jobs
0 6 1.81 0.73 .15 .08 .06 .27 .26 .09 .03 .12 .26 .18
12. Firm age 0 17 4.75 3.02 .16 .23 .20 .69 .01 .11 .14 .30 .24 .01 .22
13. Firm N of employees 0 6.19 3.66 1.05 .30 .17 .26 .41 .00 .07 .07 .61 .45 .15 .29 .43
14. Firm R&D intensity 0.01 9.41 0.43 0.97 .11 .11 .12 .03 .08 .23 .02 .16 .04 .07 .07 .00 .14
15. Firm NBER originality 0 0.98 0.66 0.22 .02 .10 .01 .13 .12 .18 .06 .00 .06 .04 .12 .04 .07 .09
16. Firm patent novelty 0 36 1.82 7.81 .01 .04 .03 .13 .09 .09 .09 .03 .03 .03 .02 .11 .09 .04 .22
17 .Firm average cited
patent age
0 16.48 7.63 2.71 .04 .02 .04 .20 .02 .14 .05 .08 .03 .00 .04 .14 .06 .12 .43 .16
N=185. Two-tailed test; correlations with an absolute value greater than 0.16 are signicant at p0.05 or smaller.
1352 K. Liu et al. / Journal of Business Research 65 (2012) 13491356
by the USPTO. When the citations are more concentrated in a few
technological classes, originality is lower and when the citations are
more dispersed in more technological classes, originality is higher.
3.2.4.8. Firm pioneering technologies. This measure is the number of a
rm's post-IPO patents that cite no prior art (Ahuja & Lampert,
2001). Prior research suggests that inventions listing no prior techno-
logical lineage (i.e., no citations) represent pioneering explorations,
are likely to represent a high degree of creativity, and tend to
represent exploration at technical boundaries.
3.2.4.9. Firm average citation age. This measure captures the average
age of the patents cited by the rm's post-IPO patent applications.
We here control for the degree to which a rm experiments with
emerging technologies because prior research shows rms focused
on emerging technologies (i.e., those that cite newer patents) tend
to create more highly cited patents (Ahuja & Lampert, 2001).
3.2.5. Statistical technique
Because the dependent variable is a non-negative, count variable,
we used negative binomial regression, following a number of earlier
studies (Ahuja & Lampert, 2001; Rosenkopf & Nerkar, 2001; Sampson,
2005; Sorensen & Stuart, 2000). Negative binomial regression is
appropriate for non-negative integers and reduces the effects of vari-
ance overdispersion. The negative binomial model is: Pr[Patent =p] =
(e

p
)/p!, where is e
X+
, X is a vector of independent variables
and is a vector of parameters. We also included year dummies, though
not reported here, to account for temporal variations across different
IPO years in our sample. None of the year controls were signicant.
4. Results
Table 1 presents descriptive statistics and correlations. Table 2 pro-
vides the negative binomial regression results for citation-weighted
patents. We examined variance ination factors of independent vari-
ables and none was higher than four, meaning that multicollinearity is
not an issue (Greene, 2000). We report ve models below. Model 1
includes control variables. Model 2 includes control variables and
the main effects of key independent variables. Model 3 includes control
variables, main effects, and interactions with rmage. Model 4 includes
control variables, main effects and interactions with rm size. Finally,
Model 5 presents fully-specied equations, including all controls,
main effects, and interactions. The chi-squares indicate all reported
models explain signicant variance in invention performance.
H1 predicted the percentage of founders in the TMT has an
inverted U-shaped relationship with invention performance. In
Model 2 the coefcient for TMT founder percent is 2.94 (pb.001) and
the coefcient for founder percent squared is negative and signicant
(b=4.65; pb.05), strongly supporting H1. Fig. 1 illustrates the
curvilinear relationship between zero and .75, the lower and
upper limits of founder percentage of the sample. Fig. 1 indicates
benets of founder percentage peak at about 31%, after which benets
of having more founders on the TMT begin to decrease. Results suggest
the optimal founder presence in the TMT at IPO would be associated
with about 6 citations whereas zero founder or 75% of founders on the
TMT would be associated with less than 4 citations. This is economically
signicant because prior studies show every extra citation increases a
rm's market value by 3% (Hall et al., 2005).
H2 predicted that TMT intrarm tenure would be negatively
associated with invention performance. Evidence from Table 2
consistently supports this prediction, indicating shorter intrarm
tenure allows the TMT to be open-minded. The TMT intrarm
tenure is negative and signicant in Model 2 (b=.28; pb.01).
H3 predicted that average competitor tenure would be positively
associated with invention performance. Evidence from Model 2
(b=.13; pb.01) strongly supports H3.
H4 predictedaverage TMT member experiences inoutside industries
would be positively related with invention performance. While the coef-
cient is indeed positive, it is not signicant (b=.10), not supporting H4.
H5a, H5b predicted rm age would negatively moderate the
effects of TMT members' competitor tenure (H5a) and outside
Table 2
Negative binomial regression of citation-weighted patents.
Variables Citation-weighted patents
Model 1 Model 2 Model 3 Model 4 Model 5
TMT founder% 2.94

2.87

2.89

2.82

(0.83) (0.82) (0.81) (0.79)

TMT founder%
squared
4.65

4.32

4.80

4.78

(1.92) (1.92) (1.92) (1.88)

TMT average
intrarm tenure
0.28

0.32

0.31

0.36

(0.10) (0.11) (0.10) (0.11)

TMT average
competitor tenure
0.13

0.13

0.11

0.12

(0.04) (0.04) (0.04) (0.04)

TMT average outside
industry tenure
0.10 0.10 0.12 0.07
(0.08) (0.07) (0.07) (0.08)
Firm age X TMT
competitor tenure
0.02

0.02
(0.01) (0.01)
Firm age X TMT
outside industry
tenure
0.03 0.05
(0.03) (0.03)
Firm size X TMT
competitor tenure
0.07 0.03
(0.04) (0.04)
Firm size X TMT
outside industry
tenure
0.12 0.19

(0.08) (0.09)
Firm age 0.01 0.15

0.14

0.16

0.14

(0.04) (0.05) (0.05) (0.05) (0.06)

Firm size 0.38

0.31 0.30 0.30 0.33

(0.19) (0.18) (0.18) (0.18) (0.17)
Average age 0.03 0.07

0.08

0.08

0.09

(0.03) (0.03) (0.03) (0.03) (0.03)

TMT size 0.04 0.05 0.06 0.04 0.05
(0.07) (0.07) (0.07) (0.07) (0.07)
Functional diversity 1.80

0.91 0.76 1.01 0.82

(0.89) (0.90) (0.91) (0.91) (0.90)
TMT doctorate% 0.14 0.36 0.19 0.27 0.28
(0.51) (0.50) (0.52) (0.48) (0.47)
TMT average number
of previous jobs
0.10 0.38 0.35 0.35 0.30
(0.20) (0.21) (0.21) (0.21) (0.21)
Firm R&D intensity 0.01 0.004 0.01 0.04 0.04
(0.18) 0.16 (0.16) (0.17) (0.18)
Firm NBER originality 0.14 0.41 0.56 0.11 0.32
(0.51) (0.67) (0.65) (0.63) (0.62)
Firm pioneering
technologies
0.003 0.003 0.002 0.0001 0.002
(0.02) (0.02) (0.02) (0.02) (0.02)
Firm average citation
age
0.01 0.01 0.03 0.01 0.01
(0.06) (0.06) (0.06) (0.05) (0.05)
Constant 1.47 2.59 2.96 2.78 3.23
(1.85) (1.74) (1.71) (1.73) (1.69)
LR chi
2
47.34

67.34

70.82

75.75

79.55

chi
2
20.00

3.48 8.41

8.73

Number of
observations
185 185 185 185
p0.10, *p0.05, **p0.01, ***p0.001, using a two-tailed test with standard errors
in parentheses.
Fig. 1. Relationship between founder percent and citation-weighted patents.
1353 K. Liu et al. / Journal of Business Research 65 (2012) 13491356
industry tenure (H5b). The evidence from Table 3 supports H5a, as
the coefcient of the interaction between rm age and competitor
experiences is negative and signicant in Model 3 of Table 3 (b=
.02; pb.05). The same effect is also weakly signicant (pb.10) in
the fully specied model (Model 5). H5b was not supported.
H6 predicted rm size would negatively moderate the effects of
competitor tenure (H6a) and outside industry tenure (H6b). The evi-
dence fromTable 3 provides partial support for H6a, with weak support
in Model 4 (b=.07; pb.10) and no support in the fully specied
Model 5 (b=.03; ns). H6b was not supported.
Two gures are presented below to graphically represent the signif-
icant interaction effects. All curves in Figs. 2 and 3 are nonlinear because
negative binomial models use exponential functions and the curves re-
ect that (Hoetker, 2007). Fig. 2 demonstrates the interaction effects of
rm age on the relationship between competitor tenure and citation-
weightedpatents, withinthe range of one standarddeviationof compet-
itor experiences above and below the sample average. All variables in
Model 3 except competitor tenure and rm age were constrained to
means. It shows the positive relationship between competitor tenure
and patent citations is stronger in younger rms than in older rms.
Competitor tenure at the TMT enhances citations at post-IPO younger
rms, but not so in older rms. For older rms, when competitor tenure
increases from one standard deviation below the mean to above the
mean, citations decrease fromover 3.5 to less than 3. By contrast, youn-
ger rms benet more from competitor tenure because citations in-
crease from about 2 to over 4 when competitor tenure increases
from one standard deviation below the mean to above the mean.
Fig. 3 shows how rm size moderates the relationship between
competitor tenure and citation-weighted patents, using coefcients
from Model 4. For smaller rms, the curve is slowly declining while
the decline is steeper in bigger rms. When competitor tenure is one
standard deviation below the mean, bigger rms have over one cita-
tion more than smaller rms. When competitor experiences increase
to one standard deviation above the mean, the trend is reversed and
smaller rms have almost one citation more than bigger rms.
We conducted some supplementary analyses to investigate
whether some board characteristics may affect the TMT composition
at IPO. Some venture capitalists or other investors may have caused
pre-IPO changes to the TMT (we thank an anonymous reviewer for
this insight), i.e., putting some professional managers on the TMT to
enhance the TMT's professionalization. We collected data of board
characteristics such as the size of the board, the percentage of venture
capitalists on the board, and the percentage of board members who
have university afliations as the independent variables. The dependent
variable was the percentage of top managers with tenure less than a
year. Because the dependent variable is a percentage, we used Tobit
regression for the analysis (Argyres & Silverman, 2004) and reported
the results in Table 3. No board characteristics were signicantly
related to the percentage of short-tenured top managers, assuaging
the concern of pre-IPO change of the TMT. While board composition
may affect pre-IPO TMT change, it does not seemto have affected our
results.
5. Discussion
We suggest different aspects of TMT experiences help the recently
IPO rm to deal with stage-specic challenges such as stakeholder,
task, and organizational challenges, which subject the post-IPO rm
to the liability of adolescence (Filatotchev & Piesse, 2009; Hannan,
1998). The TMT composition becomes critical for the post-IPO rm to
transition from an early-stage entrepreneurial rm to a more mature
public corporation (Kazanjian, 1988; Nelson, 2003). We examine
different dimensions of TMT experiences and relate those variables to
invention performance, an important outcome in the biotechnology
industry. The empirical results are largely consistent with predictions.
First, we show the founder percentage has an inverted U-shaped
(curvilinear) relationship with invention performance. The results
support the argument that founders initiate the identication and
exploitation of opportunities at entrepreneurial rms, and that they
represent an important locus of unique and rm-specic knowledge
(Kor, 2003). We extend this argument by showing that too many
founders on the TMT may decrease invention performance. Founders
often lack the knowledge of dealing with the increasing complexity
of the rm (Nelson, 2003). In technology-based industries such as
the biotech industry, founders are often scientists who seek to com-
mercialize their scientic knowledge. The TMT needs to complement
such science-based knowledge with other knowledge relevant for
the post-IPO challenges.
Second, we show TMT members' novel knowledge and experiences
contribute to inventionperformance. Consistent withthe organizational
life cycle perspective (Kazanjian, 1988; Smith & Miner, 1983), a shorter
intrarm tenure and more competitor experiences contribute to
Table 3
Tobit Regression of the effects of board characteristics on the percentage of short-tenured
managers.
Short-tenured managers
Board size 0.001
(0.01)
VC on board (%) 0.02
(0.15)
University afliation on board (%) 0.18
(0.19)
Founder patenting prior to IPO 0.01
(0.07)
Firm age 0.03***
(0.01)
Firm size 0.06
(0.03)
R&D intensity 0.02
(0.03)
Constant 0.68***
(0.13)
N. of observation 185
LR chi
2
22.70***
Pseudo R
2
0.10
p0.10, *p0.05, **p0.01, ***p0.001, using a two-tailed test with standard errors
in parentheses.
Fig. 2. Interaction between rm age and TMT competitor tenure on citation-weighted
patents.
Fig. 3. Interaction between rm size and TMT competitor tenure on citation-weighted
patents.
1354 K. Liu et al. / Journal of Business Research 65 (2012) 13491356
invention performance, which complements resource-based viewstud-
ies (Kor, 2003). Despite the importance of rm-specic knowledge, the
post-IPO rm is at a particular stage and needs to incorporate external
knowledge to enhance organizational expertise. The TMT becomes an
important vehicle to pool different knowledge since managers with
competitor experiences may have experienced similar challenges before.
Third, we show both rm age and rm size moderate the effects of
competitor tenure and outside industry tenure on invention perfor-
mance. Whereas external experiences of top managers enhance the
post-IPO rm's legitimacy and organizational complexity, such benets
would be weaker when the rm is older and bigger. Older rms with a
more established track record already have some levels of legitimacy.
External knowledge may not help so much in bigger rms having
some internal specializationand divisionof labor. While recent research
has examined how external contextual factors moderate the relation-
ship between upper echelons and invention performance (Wu et al.,
2005), we extend this larger theory by showing internal contextual fac-
tors such as rm age and rm size also matter to the post-IPO rm.
We contribute to the literature in two ways. First, our study inte-
grates the upper echelons research with the organizational life cycle
theory. While tenure characteristics of the TMT have been extensively
investigated, our study focuses on the unique context of the post-IPO
biotechnology rm and analyzes different aspects of managerial
experiencesfounder-based, intrarm, competitor, andoutside industry
experiences. We show some experiences matter such as founder and
competitor experiences while outside industry experiences may not,
and longer intrarm experiences may be even detrimental. In addition,
we show organizational contexts matter to the post-IPO rm that is
experiencing substantial changes and needs to develop legitimacy and
administrative expertise. Such ndings enrich the upper echelons
research by highlighting the importance of organizational contextual
characteristics of the post-IPO rm.
Second, our study is one of the rst empirical studies linking TMT
tenure with invention performance. The upper echelons research
shows the TMT tenure inuences a variety of organizational outcomes.
However, little is known how TMT tenure is related to invention per-
formance, a particularly important organizational outcome in contexts
suchas the biotechnology industry. Our analysis of multiple aspects of top
managers' experiences examines the whole top management team and
aggregates the managerial experiences at the team level, which adds to
current research such as Wu et al. (2005) that focuses on the CEO alone.
Our study has limitations that suggest directions for future
research. This study focuses on a single industrythe biotechindustry.
The benet of choosing the biotech industry is that this industry has
active inventions and provides a good setting to test hypotheses.
While the single industry design helps to reduce unobserved hetero-
geneity in the empirical testing, the generalizability of our results
may be limited due to idiosyncrasies of the biotech industry. Future
research may explore similar relationships in other industry settings.
6. Conclusion
We synthesize the upper echelons research with the organizational
life cycle theory and examine the effects of different aspects of TMT
tenure on the invention performance of post-IPO biotechnology rms.
We found a curvilinear relationship between the founder percentage
and invention performance. Invention performance benets from
shorter intrarmtenure and more competitor tenure. In addition, orga-
nizational contextual factors such as rm age and rm size moderate
the effects of competitor tenure and outside industry tenure.
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