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Conflicts between entrepreneurs and investors: the impact of perceived unethical behavior

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  • Veroniek Collewaert

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  • Yves Fassin

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Abstract

This paper examines the impact of perceived unethical behavior by entrepreneurs, angel investors and venture capitalists on their conflict process. For this purpose, we use an embedded case study design to provide a diversity of perspectives on the topic at hand. From the eye of the beholder, i.e. investor, entrepreneur or both, 11 conflict situations were analyzed for any perceived unethical behavior. Based on findings from within- and cross-case analysis, we propose that perceived unethical behavior among venture partners triggers conflicts between them through increased fault attribution or blaming. Further, we propose that perceived unethical behavior affects venture partners’ choice of conflict management strategy and increases the likelihood of conflict escalation and of conflict having a negative partnership outcome such as failure or another form of involuntary exit. As such, this paper contributes to the entrepreneurship literature by addressing calls for more research on the darker sides of investor–investee relationships. Copyright The Author(s) 2013

Suggested Citation

  • Veroniek Collewaert & Yves Fassin, 2013. "Conflicts between entrepreneurs and investors: the impact of perceived unethical behavior," Small Business Economics, Springer, vol. 40(3), pages 635-649, April.
  • Handle: RePEc:kap:sbusec:v:40:y:2013:i:3:p:635-649
    DOI: 10.1007/s11187-011-9379-7
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    File URL: http://hdl.handle.net/10.1007/s11187-011-9379-7
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    References listed on IDEAS

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    1. Parhankangas, Annaleena & Landstrom, Hans, 2006. "How venture capitalists respond to unmet expectations: The role of social environment," Journal of Business Venturing, Elsevier, vol. 21(6), pages 773-801, November.
    2. Tom Vanacker & Sophie Manigart, 2010. "Pecking order and debt capacity considerations for high-growth companies seeking financing," Small Business Economics, Springer, vol. 35(1), pages 53-69, July.
    3. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
    4. Higashide, Hironori & Birley, Sue, 2002. "The consequences of conflict between the venture capitalist and the entrepreneurial team in the United Kingdom from the perspective of the venture capitalist," Journal of Business Venturing, Elsevier, vol. 17(1), pages 59-81, January.
    5. Jeffrey E. Sohl, 1999. "The early-stage equity market in the USA," Venture Capital, Taylor & Francis Journals, vol. 1(2), pages 101-120, April.
    6. Baker, Thomas L. & Hunt, Tammy G. & Andrews, Martha C., 2006. "Promoting ethical behavior and organizational citizenship behaviors: The influence of corporate ethical values," Journal of Business Research, Elsevier, vol. 59(7), pages 849-857, July.
    7. Forbes, Daniel P. & Korsgaard, M. Audrey & Sapienza, Harry J., 2010. "Financing decisions as a source of conflict in venture boards," Journal of Business Venturing, Elsevier, vol. 25(6), pages 579-592, November.
    8. Sapienza, Harry J. & Manigart, Sophie & Vermeir, Wim, 1996. "Venture capitalist governance and value added in four countries," Journal of Business Venturing, Elsevier, vol. 11(6), pages 439-469, November.
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    Citations

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    Cited by:

    1. Alqatawni, Tahsen, 2013. "The Relationship Conflict between Venture Capital and Entrepreneur," MPRA Paper 48005, University Library of Munich, Germany.
    2. Daniel Appelhoff & René Mauer & Veroniek Collewaert & Malte Brettel, 2016. "The conflict potential of the entrepreneur’s decision-making style in the entrepreneur-investor relationship," International Entrepreneurship and Management Journal, Springer, vol. 12(2), pages 601-623, June.
    3. Qin, Fei & Wright, Mike & Gao, Jian, 2017. "Are ‘sea turtles’ slower? Returnee entrepreneurs, venture resources and speed of entrepreneurial entry," Journal of Business Venturing, Elsevier, vol. 32(6), pages 694-706.
    4. Gregori, Patrick & Ukobitz, Desiree V. & Parastuty, Zulaicha, 2018. "A Conceptual Framework on Entrepreneurial Team Member Exits: A Starting Point for Further Research," 6th International OFEL Conference on Governance, Management and Entrepreneurship. New Business Models and Institutional Entrepreneurs: Leading Disruptive Change (Dubrovnik, 2018), in: 6th International OFEL Conference on Governance, Management and Entrepreneurship. New Business Models and Institutional Entrepreneurs: Leading Disrupt, pages 453-474, Governance Research and Development Centre (CIRU), Zagreb.
    5. 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.
    6. Vallaster, Christine & Kraus, Sascha & Merigó Lindahl, José M. & Nielsen, Annika, 2019. "Ethics and entrepreneurship: A bibliometric study and literature review," Journal of Business Research, Elsevier, vol. 99(C), pages 226-237.
    7. Pengda Fan & Kazuo Yamada, 2020. "Same bed different dream composition of IPO shares and withdrawal decisions in weak market conditions," Small Business Economics, Springer, vol. 55(4), pages 955-974, December.
    8. Olayemi, Olufemi Olabode & Okonji, Patrick Sunday & Gbadamosi, Taofeek Olalekan & Oghojafor, Ben E. Akpoyomare, 2020. "Ethical Issues and Performance of Nigerian Insurance Companies," MPRA Paper 103652, University Library of Munich, Germany.
    9. Drover, Will & Wood, Matthew S. & Fassin, Yves, 2014. "Take the money or run? Investors' ethical reputation and entrepreneurs' willingness to partner," Journal of Business Venturing, Elsevier, vol. 29(6), pages 723-740.
    10. Pengda Fan & Kazuo Yamada, 0. "Same bed different dream composition of IPO shares and withdrawal decisions in weak market conditions," Small Business Economics, Springer, vol. 0, pages 1-20.

    More about this item

    Keywords

    Conflict; Business ethics; Venture capital; Business angels; Angel investors; Entrepreneurs; G24; L26; D74;

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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