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Research Summary: Private equity (PE) investors invest in a portfolio of firms, setting new, ambitious performance aspirations and providing monitoring and value‐adding services to help management attain these aspirations. Integrating a behavioral theory of the firm and corporate governance perspective, this study investigates how portfolio firms respond to performance feedback, considering heterogeneity in PE investors' incentives and influence toward a given portfolio firm's strategic actions. Using unique data from a PE investor including direct aspirations measures, we find that (1) portfolio firms' performance relative to aspirations, and (2) the PE investor's relative investment amounts and experience of PE‐appointed board members, interact to affect the distinct growth strategies (i.e., internal capital investments or external acquisitions) its portfolio firms pursue. Managerial Summary: A PE investor may guide its portfolio firms differently. Incentives to intervene should be larger in case of larger investments, and influence should be more extensive in case of more senior PE board representatives. In this study, we examine how a PE investor's varying incentives and influence affect how PE‐backed firms strategically react to underperformance and overperformance. We find that a PE investor pushes for capital investments but deters acquisitions as performance shortfalls increase in a portfolio firm, when they have made larger investments and appointed more senior board members. In case of overperformance, a PE investor pushes toward acquisitions (and against capital investments) when they have invested more. Surprisingly, the opposite holds in case of more senior board members. Video Abstract [ABSTRACT FROM AUTHOR]

While the academic literature on entrepreneurial finance has expanded exponentially, many gaps in our knowledge remain. This is driven by digitalization impacting the development of new investment types such as crowdfunding and ICO, the emergence of new investors based upon digital technologies, and the functioning of existing investors. Next, the supply of entrepreneurial finance has become more diverse and new types of investors developed, like incubators and accelerators, family funds, impact investors, or sovereign wealth funds. This increases the sources and type of funding new ventures can get access to. Third, investors pay increasingly attention to non-financial goals like providing solutions to environmental or societal challenges. This paper explores these trends and suggests avenues for future research. [ABSTRACT FROM AUTHOR]

While research has commonly assumed that business-owning families are concerned about the preservation of control, families are increasingly seeking cooperation with external investors to accomplish firm- or family-level goals. In this paper, we provide a conceptual configuration of the different governance scenarios that may arise when family owners attract outside capital. Combining two important family objectives—(a) to provide liquidity either to the family or to the firm, and (b) to cede or to retain long-term family control—we identify four scenarios with different governance implications and preferred types of external investors. Our analysis increases understanding of the evolving structures of ownership in private family firms, the effectiveness and efficiency of governance arrangements in family firm–external investor cooperation, and the increasingly heterogeneous private equity funding landscape. [ABSTRACT FROM AUTHOR]

Past research has shown that new firms can facilitate resource mobilization by signaling their unobservable quality to prospective resource providers. However, we know less about situations in which firms convey multiple signals of different strengths—that is, signals that are more- or less-correlated with unobservable firm quality. Building on a sociocognitive perspective, we propose that prospective resource providers respond differently to signals of different strengths and that the effectiveness of signals, especially weak signals, will be contingent on the media attention new firms receive. Empirically, we conduct a longitudinal analysis examining the ability of new private equity firms to raise a follow-on fund. Consistent with our theory, we find that unrealized performance, a relatively weak signal, positively influences fundraising. However, we fail to find statistical evidence that its effect is weaker than that of realized performance, a relatively strong signal. Further, media attention strengthens the relationship between unrealized performance and fundraising, but media attention exerts less impact on the relationship between realized performance and fundraising. Taken together, our findings deepen our understanding of how new firms can mobilize resources with signals of different strengths and of how the media—as a key information intermediary—differently impacts their effectiveness. [ABSTRACT FROM AUTHOR]

This paper studies the role of entrepreneurs in investment tie formation in science-based entrepreneurial firms. Specifically, we address why investment tie formation is path dependent for some firms but more [...]

This paper explores how contracts in private equity-backed buyouts shape corporate governance in portfolio companies. Drawing upon agency theory and incomplete contracting theory, 50 actual contracts are analyzed in detail. Contracts focus on reducing adverse selection risks through limiting pre-investment information asymmetries and aligning the goals of investors and sellers. Moral hazard risks vis-à-vis management are limited through limiting post-investment information asymmetries and limiting shirking behavior through limiting free cash flows. Goal alignment is achieved through high-powered incentive structures combined with shifting risk of underperformance to management. Managerial hold-up problems are addressed through restricting share transactions and limiting managerial actions. Residual powers and contingencies are mainly used to deal with incomplete contract designs due to uncertainties. Few clauses are used to address the reverse agency problem in which management is protected against moral hazard problems created by the private equity investor. PE contracts have transparent and very strong outcome-based cash flow rights, both limiting downside risk and rewarding upside potential. This contrasts with VC contracts which are especially contingency-based given the high levels of uncertainty of the portfolio companies. [ABSTRACT FROM AUTHOR]

Crowdfunding has become an alternative source of financing for entrepreneurial new ventures and social projects. While identifying and "tapping the right crowd" of backers has been shown to be crucial for the success of crowdfunding campaigns, we still lack a basic understanding of why individuals become backers in the first place and why so many others do not. Building on information processing theory, we advance crowdfunding awareness as an important precedent to actual engagement as a backer. We hypothesize and—using a sample of 1,042 individuals in Flanders (Belgium)—show that individuals' crowdfunding awareness depends on whether they are male or female, as well as on the (perceived) socioeconomic environment they are in. Furthermore, our findings suggest that women tend to derive their crowdfunding awareness to a larger extent from these environmental characteristics than men. These results have important implications for theory and practice. [ABSTRACT FROM AUTHOR]

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1467-6486.2009.00897.x Byline: Miguel Meuleman (1), Andy Lockett (2), Sophie Manigart (3), Mike Wright (2) Abstract: abstract By combining insights from relational network theory and agency theory we identify the boundary conditions to the embeddedness approach to partner selection decisions in interfirm collaborations. Employing a longitudinal dataset comprising the investment syndicates for the population of UK management buyouts between 1993 and 2003, we find that relational embeddedness is less important for selecting partners when agency risks are low, allowing firms to expand their networks. Furthermore, reputational capital may act as a partial substitute for relational embeddedness, again permitting firms to expand their networks. Our findings enhance understanding of the boundary conditions associated with the relational network approach to partner selections and network behaviour. Author Affiliation: (1)Vlerick Leuven Gent Management School; (2)Nottingham University Business School; (3)Ghent University Article note: Mike Wright, Centre for Management Buy-out Research, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, UK (mike.wright@nottingham.ac.uk).

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-5957.2009.02147.x Byline: Christof Beuselinck (1), Marc Deloof (1), Sophie Manigart (1) Keywords: earnings quality; conditional conservatism; loss recognition timeliness; private equity Abstract: Abstract: This paper examines the relation between private equity (PE) investors' involvement and their portfolio firms' earnings quality. We operationalize earnings quality through comparative analyses of conditional loss recognition timeliness. For a sample of unlisted Belgian firms, we find that PE involvement increases a firm's willingness to recognize losses more timely as compared to industry, size and life-cycle matched non-PE backed firms. Further, we document more powerful earnings quality effects for firms backed by independent and captive PE-investors as compared to firms backed by government-related PE-investors. Finally, we find no systematic variation in earnings quality across different levels of PE ownership. Our results are robust to the inclusion of various controls and remain unaffected when we consider the endogeneity of PE investments and compare pre- and post PE investment years. The current results provide novel evidence towards the understanding of PE investors' governance implications for portfolio firms' earnings quality. Author Affiliation: (1)The authors are respectively from Tilburg University, CentER; University of Antwerp and Universite catholique de Louvain; and Ghent University and Vlerick Leuven Ghent Management School. They thank Martin Walker (editor) and an anonymous referee as well as Willem Buijink, Ignace De Beelde, Wouter De Maeseneire, Robert Faff, Peter Joos, Peter Pope, Scott Richardson, Henri Servaes, Avanihdar Subramanyam, Sigrid Vandemaele, Heidi Vander Bauwhede and seminar participants at the University of Amsterdam (UvA), Antwerp, Diepenbeek, Ghent and Leuven. This paper has also benefited from presentations at the Doctoral Student Symposium of the Financial Management Association (Dublin), the Euroconference on Financial Regulation and Reporting (Ile Rousse), the 8th Belgian Financial Research Forum (Diepenbeek), the European Financial Management Association Conference (Helsinki), the Vereniging voor Economie Conference (Antwerp), the Accounting Research Workshop (Amsterdam, VU) and the American Accounting Association Conference (San Francisco). Financial support from the Fonds voor Wetenschappelijk Onderzoek (Grant n[degrees] G.0012.02) is kindly appreciated. Part of this work was executed when Christof Beuselinck was a PhD student at Ghent University. Earlier drafts of this paper were distributed under different titles. The usual disclaimer applies. Article History: (Paper received January 2007, revised version accepted March 2009) Article note: (*) Address for correspondence: Christof Beuselinck, Tilburg University, Warandelaan 2, PO Box 90153, 5000 LE Tilburg, The Netherlands., e-mail: C.Beuselinck@uvt.nl.

To authenticate to the full-text of this article, please visit this link: http://dx.doi.org/10.1111/j.1468-5957.2009.02124.x Byline: Miguel Meuleman (1), Mike Wright (1), Sophie Manigart (1), Andy Lockett (1) Keywords: private equity; syndication; agency theory; leveraged buyouts; venture capital Abstract: Abstract: Syndicates are a form of inter-firm alliance in which two or more private equity firms invest together in an investee firm and share a joint pay-off, and are an enduring feature of the leveraged buyout (LBO) and private equity industry. This study examines the relationship between syndication and agency costs at the investor-investee level, and the extent to which the reputation and the network position of the lead investor mediate this relationship. We examine this relationship using a sample of 1,122 buyout investments by 80 private equity companies in the UK between 1993 and 2006. Our findings show that where agency costs are highest, and hence ex-post monitoring by the lead investor is more important, syndication is less likely to occur. The negative relationship between agency costs and syndication, however, is alleviated by the reputation and network position of the lead investor firm. Author Affiliation: (1)The first author is from Vlerick Leuven Gent Management School and Centre for Management Buy-out Research Nottingham University Business School. The second author is from the Centre for Management Buy-out Research Nottingham University Business School and RSM, Erasmus University, Rotterdam. The third author is from Vlerick Leuven Gent Management School and Universiteit Gent, Belgium. The fourth author is from the Centre for Management Buy-out Research Nottingham University Business School. They would like to thank the editor and the anonymous referee for very helpful comments. Thanks to Barclays Private Equity for financial support. Article History: (Paper received April 2007, revised version accepted December 2008) Article note: (*) Address for correspondence: Mike Wright, Centre for Management Buy-out Research, Nottingham University Business School, Jubilee Campus, Wollaton Road, Nottingham NG8 1BB, UK., e-mail: mike.wright@nottingham.ac.uk

Financial theory, access to deal flow, selection, and monitoring skills are used to explain syndication in venture capital firms in six European countries. In contrast with U.S. findings, portfolio management [...]

The venture capital (VC) industry started in the United States and then spread worldwide. As it spread into other countries, there was a conscious attempt to copy industry practice from [...]