Private Equity and Entrepreneurial Governance: Time for a Balanced View

Active Involvement of Private Equity Firms in Portfolio Companies and its Performance Effects

“…The results of several empirical studies on employment development (see Bacon et al, 2013 for a review) as well as on patent filings and innovation in portfolio companies further support this perspective (Lerner, Sorensen, & Stro¨mberg, 2011;Ughetto, 2010). Overall, recent publications seem to come to the conclusion that buyouts facilitate higher levels of entrepreneurship and innovation in portfolio companies (Klein et al, 2013).…”

“…However, several authors have pointed out that private equity firms might negatively affect portfolio companies by inducing shortterm thinking, which in turn negatively impacts the company's innovativeness, strategic flexibility, and competitive ability in the long run (Bacon, Wright, Ball, & Meuleman, 2013;Folta & Janney, 2004;Palepu, 1990;Rappaport, 1990;Zahra, 1995;Zahra & Fescina, 1991). Driven by high levels of debt and pressure from private equity firms, buyouts are suspected of forcing top managers to increase short-term financial performance at the expense of the portfolio company's ability to compete with rivals and generate long-term financial performance (Klein et al, 2013). Contrasting this view, a few existing studies using longer term frames of post-exit performance and studies applying stock-market-based performance measures provide some support for the notion that buyouts are beneficial for portfolio companies also in the long term (e.g., Wright et al, 1995;Wright, Wilson, & Robbie, 1996).…”

“…Based on these resources, board members are not only able to carry out the previously mentioned monitoring function, but also serve as advisors to top managers (Barney, 2001;Hillman & Dalziel, 2003;Smart & Waldfogel, 1994). In this regard private equity firm board members are perceived to be better entrepreneurial board members than former owners (Klein et al, 2013).…”

“…Private equity firms generally do not assume day-to-day operations in portfolio companies (Klein, Chapman, & Mondelli, 2013). Hence, they have only limited direct influence on operating performance.…”

Trajectoires de croissance et structures de gouvernance élargies : une lecture des représentations des dirigeants-fondateurs de startups1

“…Ces parties prenantes devraient donc être prises en compte en priorité par les dirigeants. Dans les startups, il s'agit notamment des investisseurs en capital (Daily, McDougall, Covin et Dalton, 2002 ;Sapienza, Manigart et Vermeir, 1996) puisqu'ils jouent un rôle central dans la survie et la croissance de ces entreprises (Klein, Chapman et Mondelli, 2013). On peut aisément imaginer que ces parties prenantes peuvent fortement influencer la gouvernance de ces sociétés (c'est-à-dire à la fois les relations avec les autres parties prenantes et les mécanismes de gouvernance mis en place).…”