Equity ownership and identification with the founding team

Abstract

AbstractFounders benefit from identifying with their founding teams because identification facilitates cooperation in the team, aligns founders' actions with the norms and interests of the team, and, ultimately, enhances team performance. High identification with the team is likely to be shaped by structural characteristics of the founding team and, more specifically, founders' equity stakes—that is, founders' legal ownership of the venture. In the present study, we explore the consequences of equity ownership on a founder's subsequent identification with the team. We build on psychological ownership theory to theorize that, on the one hand, equity can trigger feelings of responsibility and care for the venture, but, on the other, it can also drive possessiveness and territoriality. These two opposing sides of psychological ownership suggest a curvilinear relationship between equity ownership and a founder's subsequent identification with the team. As equity is a team reward, we suggest that founders' perceptions of team performance accentuate the relationship. Longitudinal data including 156 data points from 82 founders support our theorizing. We discuss implications for the literatures on team identification, equity ownership, and psychological ownership.