IDEAS home Printed from https://ideas.repec.org/p/jrp/jrpwrp/2007-086.html
   My bibliography  Save this paper

Creating Strategic Advantage through Entrepreneurial Governance in New Ventures

Author

Listed:
  • David B. Audretsch

    (Max Planck Institute of Economics and Indiana University)

  • Erik E. Lehmann

    (University of Augsburg and Max Planck Institute of Economics)

  • Lawrence A. Plummer

    (Clemson University and Max Planck Institute of Economics)

Abstract

An important literature has made a fundamental link between corporate governance and corporate strategy. According to agency theory, assigning managers stock options aligns their interests with the interests of the owners of the firm. This paper suggests that this may not apply in the context of new ventures. Instead, an alternative perspective offered in this paper suggests that if contracts are incomplete, then managerial stock ownership not only provides a mechanism to align managerial incentives with the owners' goals, as agency theory predicts, it also grants top managers residual control rights to be used in subsequent negotiations with the owners. The ability to exercise residual control rights improves the ex post bargaining position of the CEO as an asset owner, thereby increasing her incentive to make relationship-specific investments that are specific to the new venture. Thus, in the context of new venture strategy assigning asset ownership to those who have the most important relationship-specific resources or who have indispensable human capital is a crucial source of subsequent competitive advantage. This theory of entrepreneurial governance is tested using patent ownership as a proxy for both relationship-specific investments and indispensable human capital of the CEO of the new venture. The empirical results support the main hypothesis posited by the entrepreneurial governance model.

Suggested Citation

  • David B. Audretsch & Erik E. Lehmann & Lawrence A. Plummer, 2007. "Creating Strategic Advantage through Entrepreneurial Governance in New Ventures," Jena Economic Research Papers 2007-086, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2007-086
    as

    Download full text from publisher

    File URL: http://zs.thulb.uni-jena.de/receive/jportal_jparticle_00082393
    Download Restriction: no

    References listed on IDEAS

    as
    1. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
    2. André Stel & Martin Carree & Roy Thurik, 2005. "The Effect of Entrepreneurial Activity on National Economic Growth," Small Business Economics, Springer, vol. 24(3), pages 311-321, February.
    3. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
    4. N. Berger, Allen & F. Udell, Gregory, 1998. "The economics of small business finance: The roles of private equity and debt markets in the financial growth cycle," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 613-673, August.
    5. Klapper, Leora & Laeven, Luc & Rajan, Raghuram, 2004. "Business environment and firm entry : Evidence from international data," Policy Research Working Paper Series 3232, The World Bank.
    6. Luigi Guiso & Michael Haliassos & Tullio Jappelli, 2003. "Household stockholding in Europe: where do we stand and where do we go?," Economic Policy, CEPR;CES;MSH, vol. 18(36), pages 123-170, April.
    7. Acs, Zoltan J & Audretsch, David B, 1988. "Innovation in Large and Small Firms: An Empirical Analysis," American Economic Review, American Economic Association, vol. 78(4), pages 678-690, September.
    8. Zoltán Ács & Attila Varga, 2005. "Entrepreneurship, Agglomeration and Technological Change," Small Business Economics, Springer, vol. 24(3), pages 323-334, February.
    9. William Bygrave & Michael Hay & Emily Ng & Paul Reynolds, 2003. "Executive forum: A study of informal investing in 29 nations composing the Global Entrepreneurship Monitor," Venture Capital, Taylor & Francis Journals, vol. 5(2), pages 101-116, April.
    10. Richard T. Harrison & Colin M. Mason, 2000. "Venture capital market complementarities: The links between business angels and venture capital funds in the United Kingdom," Venture Capital, Taylor & Francis Journals, vol. 2(3), pages 223-242, July.
    11. Richard T. Harrison & Colin M. Mason & Paul Girling, 2004. "Financial bootstrapping and venture development in the software industry," Entrepreneurship & Regional Development, Taylor & Francis Journals, vol. 16(4), pages 307-333, July.
    12. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    13. Robert Wiltbank, 2005. "Investment practices and outcomesof informal venture investors," Venture Capital, Taylor & Francis Journals, vol. 7(4), pages 343-357, August.
    14. Poh Kam Wong & Yuen Ping Ho, 2006. "Characteristics and determinants of informal investment in Singapore," Venture Capital, Taylor & Francis Journals, vol. 9(1), pages 43-70, June.
    15. Arthur, Michael B. & Rousseau, Denise M. (ed.), 1996. "The Boundaryless Career: A New Employment Principle for a New Organizational Era," OUP Catalogue, Oxford University Press, number 9780195100143.
    16. Markku Maula & Erkko Autio & Pia Arenius, 2005. "What Drives Micro-Angel Investments?," Small Business Economics, Springer, vol. 25(5), pages 459-475, December.
    17. Alf SæTRE, 2003. "Entrepreneurial perspectives on informal venture capital," Venture Capital, Taylor & Francis Journals, vol. 5(1), pages 71-94, January.
    18. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    19. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    20. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    21. Sapienza, Harry J., 1992. "When do venture capitalists add value?," Journal of Business Venturing, Elsevier, vol. 7(1), pages 9-27, January.
    22. Heiko Bergmann & Rolf Sternberg, 2007. "The Changing Face of Entrepreneurship in Germany," Small Business Economics, Springer, vol. 28(2), pages 205-221, March.
    23. Yuen Ping Ho & Poh Kam Wong, 2005. "Availability of Financing, Regulatory Business Costs and National Entrepreneurial Propensity," Industrial Organization 0504025, EconWPA, revised 03 Aug 2005.
    24. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    managerial equity ownership; new ventures; property rights; governance; knowledge; innovation;

    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:jrp:jrpwrp:2007-086. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Markus Pasche). General contact details of provider: http://www.jenecon.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.