The Effects of Venture Capitalists on the Governance of Firms

Bonini, Stefano; Aktuccar, Senem Alkan; Salvi, Antonio

doi:10.2139/ssrn.951665

Cited by 19 publications

(26 citation statements)

References 72 publications

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“…Other studies have been supportive of this trend for more effective governance, for example, VC-backed IPOs have more independent boards than non-VC-backed IPOs (Filatotchev et al, 2006;Suchard, 2009); the influence of VCs on hiring of CEOs, executive remuneration, board decisions and appointments (Bonini et al, 2012); and the VC monitoring role (Chahine & Saade, 2011). Campbell and Frye (2009) studied the impact of VC involvement on governance structures at IPO and four years post-IPO.…”

Section: Hypotheses Developmentmentioning

confidence: 99%

Governance, Ownership Structure, and Performance of Entrepreneurial IPOs in AIM Companies

Farag

Mallin

Ow-Yong

2014

Corporate Governance

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Manuscript Type Empirical Research Question/Issue The study investigates the impact of venture capital (VC) ownership on corporate governance characteristics in entrepreneurial companies listed on the UK's Alternative Investment Market (AIM). In particular, the paper examines the impact of venture capital funds on the firm's governance structure post‐IPO and the dynamic inter‐relationship between corporate governance (CG), venture capital ownership and financial performance. Research Findings/Insights Using hand collected data from a sample of 271 entrepreneurial companies admitted to AIM during the period 2000–2007, we measure and track the corporate governance characteristics by constructing a CGAIM50 index. Our findings suggest a high level of VC ownership and its reputation leads to better corporate governance in our sample of entrepreneurial Initial Public Offering (IPO) companies. We also find a positive and significant relationship between corporate governance characteristics and financial performance, which suggests that outside shareholders such as VCs bring managerial know‐how and hence help improve IPO companies' performance. Theoretical/Academic Implications The study is the first to examine the CG characteristics of entrepreneurial (fast growth) companies on the AIM using a unique index. The inter‐relationship between venture capital ownership structure, corporate governance, and financial performance is modeled using the system GMM estimator of dynamic panel model in addition to the 3SLS methodology. Practitioner/Policy Implications The study offers practical implications for regulatory authorities and investors, as it highlights that venture capital funds investing in entrepreneurial companies on the AIM have a positive impact on both corporate governance and company performance, which improves after IPO admission, and also on subsequent performance.

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Section: Hypotheses Developmentmentioning

confidence: 99%

Governance, Ownership Structure, and Performance of Entrepreneurial IPOs in AIM Companies

Farag

Mallin

Ow-Yong

2014

Corporate Governance

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“…Second, region-specific patterns of VC activity have been documented by Bertoni, Colombo, and Quas (2015) and Bozkaya and Kerr (2014) for Europe. International analyses of VC investment patterns linked to differences in institutional settings have been examined, among others, by Bertoni and Groh (2014), Bonini, Alkan, and Salvi (2012), Dai and Nahata (2016), Guler and Guillén (2010), Johan, Schweizer, and Zhan (2014), Li and Zahra (2012), Schertler and Tykvová (2012), Schwienbacher (2008), Tykvova and Schertler (2014), and Wang and Wang (2012). Prior work has not examined VC investment cycles of fintech.…”

mentioning

confidence: 99%

Fintech venture capital

Cumming

Schwienbacher

2018

Corporate Governance

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Manuscript Type Empirical Research Question/Issue Where are fintech venture capital investments taking place around the world? What is the role of institutional factors on the international allocation of fintech venture capital? Research Findings/Insights We document a notable change in the pattern of fintech venture capital (VC) investments around the world relative to other types of investments after the global financial crisis. We show that fintech venture capital investments are relatively more common in countries with weaker regulatory enforcement and without a major financial center after the financial crisis. Also, we show the fintech boom is more pronounced for smaller private limited partnership venture capitalists that likely have less experience with prior venture capital booms and busts. These fintech VC deals are substantially more likely to be liquidated, especially when located in countries without a major financial center. Theoretical/Academic Implications We build on the institutions and corporate governance literatures by showing the importance of enforcement in driving relative differences in investment patterns and investor participation. For entrepreneurial startups, regulatory arbitrage drives investment into countries with a dearth of enforcement and regulatory costs. We argue that the spike in fintech venture capital in certain countries is attributable to differential enforcement of financial institution rules amongst startups versus large established financial institutions after the financial crisis. Practitioner/Policy Implications Regulatory arbitrage in the context of fintech venture capital can spur booms and busts. Less experienced venture capitalists seem more prone to undertake investments that exacerbate boom and bust cycles. National governance is strengthened by the enforcement of regulatory standards, and corporate governance through investor experience and oversight can mitigate these swings, and facilitate better investment outcomes.

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“…Moreover, obtaining institutional financing is linked to the development of more sophisticated human resources, superior hiring policies, such as for marketing positions, and other changes. Bonini et al (2012) show that funding from a VC influences executive hiring, board decisions, appointments of personnel, incentive schemes, and executive compensation as well -increasingly so the higher the funding amount is. The sample used includes two predominant regions, Europe and the US, and yields that funding is only partially important in explaining this influence of strategy and planning of the venture.…”

Section: Interactions With the Venturementioning

confidence: 99%

Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review

2017

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Institutional financing, angel financing, and crowdfunding have evolved and matured in the entrepreneurial finance market and their field of research has progressed with it. Congruent to this, however, comprehensive literature reviews on these topics remain scarce. Herein, we provide an overview of a vast body of literature, presenting the contemporary state of research and succinctly identifying its subcategories. Additionally, we provide insight into major research trends and research gaps using a theoretical framework.JEL Codes: G20 (General), G23 (Non-bank Financial Institutions, Institutional Investors), G24 (Venture Capital)

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The Effects of Venture Capitalists on the Governance of Firms

Cited by 19 publications

References 72 publications

Governance, Ownership Structure, and Performance of Entrepreneurial IPOs in AIM Companies

Governance, Ownership Structure, and Performance of Entrepreneurial IPOs in AIM Companies

Fintech venture capital

Institutional Seed Financing, Angel Financing, and Crowdfunding of Entrepreneurial Ventures: A Literature Review

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