Strategically camouflaged corporate governance in IPOs: Entrepreneurial masking and impression management

• Impression management suggests that individuals are more likely to use deception when being viewed positively is critical
• We examine whether entrepreneurs employ similar tactics to obscure, or “camouflage” their governance provisions.
• The use of camouflage is tempered when firms believe they face more scrutiny
• More entrenched firms camouflage their governance more extensively

Entrepreneurs attempt to persuade potential investors that their new ventures are both credible and worthy of funding. A long line of research on entrepreneurial impression management establishes that the ability to present their ventures in a favorable light is a key attribute of successful entrepreneurs. In this study, we examine the opposite side of the issue and test to determine if some entrepreneurs obscure corporate governance information. We create a new metric to measure the level of camouflage used in governance documents for initial public offerings (IPOs). We find that entrepreneurs are less likely to use camouflage during periods of high scrutiny, as measured by industry analyst following, industry concentration levels, and IPO clustering. We also find that greater use of camouflage is associated with raising more capital, due to both greater offer proceeds as well as less underpricing. This effect is most pronounced in corporate charters which are difficult for shareholders to change.