Session 99

Governance and entrepreneurial finance

Track K

Date: Tuesday, October 6, 2015

 

Time: 17:30 – 18:45

Common Ground

Room: Plaza Court 1


Facilitator:

  • Dane Blevins, Clemson University

Title: Do I Have a Say in It? The Founders’ Role in Venture Capital Syndicate Formation

Authors

  • Lei Zhang, University of South Florida

Abstract: Despite being the ones who solicit venture capital (VC) funding, the founders’ influence on VC syndicate formation has been neglected in the current literature. This paper fills this gap by comparing serial and novice entrepreneurs. We argue that a syndicate with lower prior tie density is more likely to be formed by serial entrepreneurs. However, this effect only holds when collaboration challenges are less of an issue. In the case of multi-VC syndicates, serial entrepreneurs are more likely to form a syndicate with lower tie strength dispersion to ensure a supportive syndicate. Empirical analyses of 183 startup companies support our arguments.

Title: Governance Arrangements in Entrepreneurial Finance

Authors

  • Hsin-Ju Bien, Purdue University

Abstract: Entrepreneurial firms face a trade-off when receiving corporate venture capital (CVC) funding. They may need motivate CVCs to provide complementary assets that are likely inaccessible from other sources by offering sufficient ownership and control. However, the strategic goals of CVCs may raise opportunism and misappropriation concerns. In this study, we demonstrate that protective covenants can be used to safeguard one party against cooperation hazards without hurting the other partner’s incentives to put sufficient resources to the interfirm relationship. By examining 244 contracts of rounds that ventures first receiving CVC funding, we find that the ownership power, prestige power, and absorptive capability of CVCs, and the quality of ventures are positively related to the veto power of other IVC syndicates to curb the potential hazards in interfirm relationships.

Title: Principal Problem in Startups Predicts Acquirer Abnormal Returns

Authors

  • Jennifer Lee, Michigan State University

Abstract: Many technology industry firms are serial acquirers of startups, most of which lead to negative market perception. Such negative market perception can be attributed, in part, to the high level of uncertainty in assessing the value of privately held target company. Drawing on agency theory, I propose that a unique agency problem within startups—conflicts among multiple investors—predicts acquirer abnormal returns. Moreover, the relationship between target firm’s characteristic and market perception of acquisitions has largely been ignored. This study contributes to agency theory literature, venture capital literature, and acquisitions literature.

Title: Resource-Based Bargaining and Pre-IPO Price Adjustments: The Role of Bargaining Power in Pre-Market Transactions

Authors

  • David Townsend, Virginia Tech
  • Marc Junkunc, Virginia Tech
  • John Pearlstein, Temple University

Abstract: Initial Public Offerings (IPOs) represent an important rent appropriation event in the lifecycle of young ventures. However, significant information asymmetries often limit the opportunity for these firms to appropriate rents through the IPO. In this paper we advance research based in resource-based bargaining theory to explore the factors that shape the bargaining process over the final listing price of the IPO – since the final offer price determines most directly the amount of IPO proceeds appropriated by the firm. We test our arguments with a sample of IPOs drawn from the 1990s and find that differences in the resource-based bargaining power of companies issuing their stocks drives pre-IPO pricing negotiations and therefore largely determines the extent to which firms can appropriate rents in pre-market settings.

Title: Same Action Different Signal : Reverse Mergers, Private Investments, and JOBS Act

Authors

  • HoWook Shin, University of Texas-Dallas
  • Seung-Hyun Lee, University of Texas at Dallas

Abstract: This study examines how the enactment Jumpstart Our Business Startups Act (JOBS Act) which reduces the IPO cost in US market influences the likelihood and amount of PIPE in firms going public through reverse mergers which have acquired significant popularity as an alternative to IPO for small private firms. We propose that undertaking reverse mergers after the enactment of JOBS Act may signal the incapability of firms to choose IPOs even under the reduced cost. This negative signal will have larger effect on PIPE if reverse merger transaction entail severer information asymmetry. Adopting real options perspective, we argue and find that reverse mergers conducted by Chinese private firms or high-tech private firms will be less likely to receive PIPE or receive less amount of PIPE.

Title: The Value Translation Problem: A Theory of Venture Growth and Innovation

Authors

  • Elisa Alvarez-Garrido, University of South Carolina

Abstract: Lack of funding is a major impediment to growth of entrepreneurial ventures. This paper poses that certain projects receive systematically less funding than they should. I argue that there is a value translation problem: there is a gap between the potential value of a project, and its assessed value by investors. And this value translation gap increases with the complexity of the project. I develop a model that studies the effect of project complexity, the number of products that derive from a project, and the startup and investor characteristics, followed by normative recommendations. In sum, the value translation problem underscores that growth and innovation are intertwined, and shows some of the causes of the well known problem of underfunding in the strategy literature.

All Sessions in Track K...

Sun: 08:00 – 09:15
Session 10: Entrepreneurship in Base-of-the-Pyramid Markets
Sun: 09:45 – 11:00
Session 11: Crowdfunding Research: Present and Future
Sun: 11:15 – 12:30
Session 12: Environmental Entrepreneurship: How and When do Entrepreneurs address Environmental Degradation?
Sun: 16:15 – 17:30
Session 50: Entrepreneurship and Institutional Environment
Sun: 17:45 – 00:00
Session 319: Entrepreneurship and Strategy Business Meeting
Mon: 08:00 – 09:15
Session 56: Family firms
Mon: 11:15 – 12:30
Session 119: Competition and entrepreneurial entry
Mon: 13:45 – 15:00
Session 53: New forms of entrepreneurial funding
Session 97: Accelerators, corporate VCs and new venture creation
Mon: 16:45 – 18:00
Session 59: Entrepreneurship in emerging markets
Session 98: Culture, institutions and entrepreneurship
Tue: 08:00 – 09:15
Session 54: Venture capital and angel financing
Session 118: Entrepreneurial orientation and strategic entrepreneurship
Session 217: Leadership and Governance in Family Firms
Tue: 11:00 – 12:15
Session 51: Academic entrepreneurship
Tue: 14:15 – 15:30
Session 58: Corporate VCs and spin-outs
Session 120: Creativity, knowledge spill overs and a venture's legitimacy
Tue: 15:45 – 17:00
Session 52: Entrepreneurial business models
Session 55: Entrepreneurship and cognitions
Tue: 17:30 – 18:45
Session 57: Entrepreneurial teams
Session 99: Governance and entrepreneurial finance


Strategic Management Society

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