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CEO Dismissal in Venture Capital-Backed Firms: Further Evidence from an Agency Perspective

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  • Garry D. Bruton
  • Vance H. Fried
  • Robert D. Hisrich

Abstract

This study uses agency theory to examine CEO dismissal in venture capital-backed firms. Prior applications of agency theory have focused on reducing managerial opportunism by aligning the interests of manager with owner. Unlike large, mature firms, venture capital-backed companies feature high levels of CEO stock ownership. In this environment, we find that the primary reason for CEO dismissal is lack of agent ability, followed by good faith disagreements between principal and agent, with managerial opportunism ranking last. Further, we find that CEOs dismissed for opportunism owned more stock than those dismissed for other reasons.

Suggested Citation

  • Garry D. Bruton & Vance H. Fried & Robert D. Hisrich, 2000. "CEO Dismissal in Venture Capital-Backed Firms: Further Evidence from an Agency Perspective," Entrepreneurship Theory and Practice, , vol. 24(4), pages 69-77, July.
    • Handle: RePEc:sae:entthe:v:24:y:2000:i:4:p:69-77
    DOI: 10.1177/104225870002400405
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    1. Krzysztof Dziekoñski & S³awomir Ignatiuk, 2016. "Venture capital and private equity investment strategies in selected European countries," "e-Finanse", University of Information Technology and Management, Institute of Financial Research and Analysis, vol. 11(4), pages 34-45, March.
    2. Will Drover & Matthew S. Wood & G. Tyge Payne, 2014. "The Effects of Perceived Control on Venture Capitalist Investment Decisions: A Configurational Perspective," Entrepreneurship Theory and Practice, , vol. 38(4), pages 833-861, July.
    3. Breugst, Nicola & Patzelt, Holger & Rathgeber, Philipp, 2015. "How should we divide the pie? Equity distribution and its impact on entrepreneurial teams," Journal of Business Venturing, Elsevier, vol. 30(1), pages 66-94.
    4. Garry D. Bruton & Salim Chahine & Igor Filatotchev, 2009. "Founders, Private Equity Investors, and Underpricing in Entrepreneurial IPOs," Entrepreneurship Theory and Practice, , vol. 33(4), pages 909-928, July.
    5. Petty, Jeffrey S. & Gruber, Marc, 2011. ""In pursuit of the real deal": A longitudinal study of VC decision making," Journal of Business Venturing, Elsevier, vol. 26(2), pages 172-188, March.
    6. Laurence Cohen & Peter Wirtz, 2022. "Decision-making style in entrepreneurial finance and growth," Small Business Economics, Springer, vol. 59(1), pages 183-210, June.
    7. JoAnne Yong–Kwan Lim & Lowell W. Busenitz & Laku Chidambaram, 2013. "New Venture Teams and the Quality of Business Opportunities Identified: Faultlines between Subgroups of Founders and Investors," Entrepreneurship Theory and Practice, , vol. 37(1), pages 47-67, January.
    8. Andrew L. Maxwell & Moren Lévesque, 2014. "Trustworthiness: A Critical Ingredient for Entrepreneurs Seeking Investors," Entrepreneurship Theory and Practice, , vol. 38(5), pages 1057-1080, September.
    9. Jain, Bharat A. & Tabak, Filiz, 2008. "Factors influencing the choice between founder versus non-founder CEOs for IPO firms," Journal of Business Venturing, Elsevier, vol. 23(1), pages 21-45, January.
    10. Busenitz, Lowell W. & Fiet, James O. & Moesel, Douglas D., 2004. "Reconsidering the venture capitalists' "value added" proposition: An interorganizational learning perspective," Journal of Business Venturing, Elsevier, vol. 19(6), pages 787-807, November.
    11. Garry D. Bruton & Vance H. Fried & Sophie Manigart, 2005. "Institutional Influences on the Worldwide Expansion of Venture Capital," Entrepreneurship Theory and Practice, , vol. 29(6), pages 737-760, November.
    12. Lu, Qing & Hwang, Peter & Wang, Clement K., 2006. "Agency risk control through reprisal," Journal of Business Venturing, Elsevier, vol. 21(3), pages 369-384, May.
    13. Dubocage, Emmanuelle & Galindo, Géraldine, 2014. "Understanding founder–CEO’s replacement in venture-backed companies: A theoretical and empirical analysis," European Management Journal, Elsevier, vol. 32(3), pages 461-474.
    14. Jonathan D. Arthurs & Lowell W. Busenitz, 2003. "The Boundaries and Limitations of Agency Theory and Stewardship Theory in the Venture Capitalist/Entrepreneur Relationship," Entrepreneurship Theory and Practice, , vol. 28(2), pages 145-162, March.

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