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Responses to psychological contract violations in the venture capitalist-entrepreneur relationship: An exploratory study

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  • Annaleena Parhankangas
  • Hans Landström

Abstract

The purpose of this paper is to describe venture capitalists' responses to psychological contract violations in their relationship to entrepreneurs. In particular, the authors seek to establish a link between the characteristics of a psychological contract violation and the venture capitalist's attitudes and behaviour. They are concerned with four situations conducive to psychological contract violations in a venture capitalist-entrepreneur relationship: (1) a disagreement over the goals or strategies of a portfolio company; (2) incompetence; (3) shirking; and (4) opportunistic behaviour of the entrepreneur. The results show that these four examples of psychological contract violations are an integral part of the venture capitalist-entrepreneur interaction. Faced with these challenges, venture capitalists prefer active behaviours to passive approaches. It was also found that venture capitalists' reactions to unmet expectations are influenced by the degree to which a psychological contract violation is perceived to be voluntary and harmful for the portfolio company. In a similar vein, venture capitalists' attitudes and behaviour are shaped by the extent to which it is possible to improve the impaired relationship.

Suggested Citation

  • Annaleena Parhankangas & Hans Landström, 2004. "Responses to psychological contract violations in the venture capitalist-entrepreneur relationship: An exploratory study," Venture Capital, Taylor & Francis Journals, vol. 6(4), pages 217-242, October.
    • Handle: RePEc:taf:veecee:v:6:y:2004:i:4:p:217-242
    DOI: 10.1080/1369106042000258526
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    Cited by:

    1. Claire Champenois & Michel Devigne & François-Régis Puyou, 2016. "How Can Venture Capitalists-Owner Managers Conflicts Be Managed? If You Want Peace, Agree to Keep the Peace," Post-Print hal-01398988, HAL.
    2. Edmée van Dijk & Leon Schrevel & Rosalie van Stormbroek-Burgers & Robert Jan Blomme, 2014. "How to Create an Effective Venture Capitalist–Entrepreneur Relationship," SAGE Open, , vol. 4(4), pages 21582440145, October.
    3. Odile Chanut & Gilles Paché, 2011. "Psychological contract: understanding and prolonging a franchise relationship [Le contrat psychologique : comprendre et pérenniser une relation de franchise]," Post-Print hal-01757078, HAL.
    4. Davies, Mark A.P. & Lassar, Walfried & Manolis, Chris & Prince, Melvin & Winsor, Robert D., 2011. "A model of trust and compliance in franchise relationships," Journal of Business Venturing, Elsevier, vol. 26(3), pages 321-340, May.
    5. David J. Scheaf & Matthew S. Wood, 2022. "Entrepreneurial Fraud: A Multidisciplinary Review and Synthesized Framework," Entrepreneurship Theory and Practice, , vol. 46(3), pages 607-642, May.

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