When the going gets tough: board capital and survival of new economy IPO firms

The high profile corporate collapse of Enron and WorldCom has been attributed to corporate governance failures. This implicit linkage between governance failures and corporate failures raises the important question of whether good governance will mitigate the probability of failure of a firm faced with extreme financial duress. Additionally, recent studies question the assumption that a single board structure will be optimal for all firms. We empirically address this issue in the context of survival of new economy Australian IPOs. We characterize governance by board structure and leadership. Our results show that one of the key principles of the Cadbury Code of Best Practice, that firms should have independence boards is useful in mitigating the likelihood of corporate failure. Also, firms with either small boards or large boards are more likely to survive compared to firms with medium size boards