Firm Founders Research Articles

Corporate payout policy in founder and family firms

This paper investigates the tax and agency explanations of corporate payout policy by investigating the likelihood, the level and the method of payout in founder and family firms. Controlling founders and families are both subject to the tax disadvantage of dividends arising from their substantial shareholdings, but family firms are arguably subject to more severe agency conflicts than founder firms due to their susceptibility to wasteful expenditure and the adverse effects of intra-family conflicts. Results indicate that founder firms on average are less likely and pay a lower level of dividends than family firms. Moreover, founder firms prefer share repurchase over dividends as the main method of payout whereas family firms prefer dividends over share repurchase. Overall, our findings are consistent with the agency explanation of corporate payout policy.

An Investigation of Start-up Outcomes Over Time: Does Start-up Capital Structure Matter?

Abstract: Despite the importance of a need for a more robust understanding of the new venture start-up process, there continues to be a disparity in the understanding of the critical pathway antecedents of start-up outcomes. Furthermore, research in nascent start-up outcomes rarely investigates the temporal dynamics associated with start-up outcomes. Therefore, he objective of this research is to address how start-up capital structure influences the time to either new firm founding or disbanding by applying pecking order theory of the firm. We analyze how start-up capital structure impacts the timing to start-up outcomes using competing risk event history analysis on a nationally representative sample of nascent entrepreneurs. Our findings suggest that external equity has an appreciable impact on new firm emergence.

Antecedents of Innovation Strategies in New Technology‐based Firms: Interactions between the Environment and Founder Team Composition

This research contributes to the ongoing stream of research on the integration of technical and business knowledge for successful innovation, but does so with a unique focus—that of new firm founder teams. This is in contrast to much of the existing literature, which focuses on organizational units in large firms.As part of their strategy for success, new technology‐based firms need to find an optimal balance between exploration and exploitation in their innovation activities. However, the resource constraints they typically face make it difficult for them to pursue both at the same time, which means that at any given point in time they are likely to opt for either exploration or exploitation rather than both. The purpose of this research is to investigate what influences new technology‐based firms to select one innovation strategy over another. Data collected in 145 new technology‐based firms are used to test hypotheses about how environmental conditions and founder team composition interact in their contributions to choice of innovation strategy. Based on hierarchical regression analysis of the data, the research findings suggest that teams consisting of individuals who have dissimilar backgrounds are more likely to adapt their innovation strategy to the characteristics of the environment than teams of individuals with similar backgrounds. Conversely, teams consisting of individuals with similar backgrounds are more likely to continue to follow their preferred strategy. However, as competitive intensity or environmental dynamism increases, such teams are likely to deviate from their preferred strategy.

BOUNDARIES OF NETWORK TIES IN ENTREPRENEURSHIP: HOW LARGE IS TOO LARGE?

External environments can require entrepreneurs to adjust and maintain network ties to cope with environmental changes and turbulence. Although network ties can help entrepreneurs gain resources and support, researchers are becoming aware of some negative aspects of networks, such as information redundancy. We used relative weight analysis and identified that environmental munificence and uncertainty influence the size of one's network. In addition, we surveyed 44 entrepreneurial founders of firms in the bio-technology industry regarding their network composition, including number of ties and firm performance. We found that environmental factors led to increases in both business and social network size. In addition, we identified an optimal number of network ties prior to tie-additions becoming negatively related to firm performance.

Greetings from the West: The people of Veneklasen Associates

Western Electro-Acoustic Laboratory (WEAL) was founded in 1947 by Paul S. Veneklasen, FASA, for the manufacture of precision acoustical instruments utilizing the Western Electric 640AA Precision Condenser Microphone. When asked in 1951 to provide acoustical consulting services on a jet engine test cell, the architect insisted on dealing with an individual, not a laboratory, and Paul S. Veneklasen & Associates (PSVA) was born. Renamed Veneklasen Associates (VA) after Paul Veneklasen’s death in 1996, VA and WEAL have had the privilege of employing excellent associates over 65 years of business. Many within this group have contributed to the science of acoustics, in several cases founding firms to continue the practice of acoustical consulting. Others like the principal author, employed since 1956, have remained at VA continuing to contribute and mentor others in the science of acoustics. All of us have benefited from Paul Veneklasen’s approach to consulting projects, his use of corroborating measurements, reporting style and the quest for solutions to acoustical problems. In addition, the firm carries on Paul Veneklasen’s tradition of in-house acoustical research to advance the field. The Poster traces this history in terms of its current and former employees and their careers with PSVA and VA.

Insights from Canadian Case Studies on Succession and Knowledge Transfer in Family Firms

This study investigated firstly whether the family business succession process differs from non-family business succession, secondly the nature of knowledge transfer and specifically about the nature of tacit and explicit knowledge transfer between the founder and successors and thirdly the impact of the degree and nature of trust between the founder and successor is considered along with the issue of whether the level of perceived trust differs depending on the length of the relationship between the firm founder and successor. Finally the impact of the successor's gender on the tacit knowledge transfer process is noted. The contribution of this research to the founders of family business, their successors and their advisors are highlighted, the study's limitations and directions for future research are noted.

The Consequences of Entrepreneurial Firm Founding on Innovation

This paper studies if and how individual-level patenting activity changes as an employee transitions to entrepreneurial firm founder. Using a large database of employment and innovative histories of over 1110 spinoff firm founders, the empirical strategy tracks both founders and her co-inventors who remain at her previous employer. There are significant changes in patenting focus and quality. Founders are relatively more likely to focus on fewer industry patent classes as the lead patent author, while citing their previous work less. Their patent quality increases after spinoff firm founding in several ways. Non-self citations received increase and the types of patent applications point to a move towards longer-term projects. Finally, we interpret a higher probability of producing a patent in both the right and the left tail of the quality distribution as suggestive evidence of the spinoff firm pursuing riskier projects.

Localization of knowledge and entrepreneurs’ mobility: the case of Germany’s biotechnology industry

In this paper we analyse the location choice of mobile entrepreneurs for the example of Germany’s biotechnology industry. In fact, 37.5 per cent of all founders of biotech firms within a planning region immigrated from another planning regions. The results of our econometric analysis indicate that only the number of immigrated scientific entrepreneurs increases with the difference in the number of researchers as well as the amount of third-party funds acquired by public research units between the receiving and sending entity. We conclude that the size and the excellence of localized knowledge base imply a positive selection of attracted entrepreneurs.

Achievement motivation, strategic orientations and business performance in entrepreneurial firms

Purpose – There is a lack of research on the link between the personal disposition of an entrepreneurial firm's founder, the firm's strategic orientation and its performance outcomes. Also, there is a lack of cross-national research on entrepreneurial firms’ strategic orientations. This paper seeks to address these gaps by exploring the differences in strategic orientation choices and their performance outcomes for American and Japanese entrepreneurial firms, focusing on founders’ achievement motivation as a key personal disposition. Design/methodology/approach – A survey was conducted among 397 Japanese founders and 189 American ones. Findings – This paper's key counterintuitive finding is that Japanese and American founders of entrepreneurial firms are more similar than is often suggested. The paper first finds that in both Japan and the US, achievement motivation is positively related to customer orientation and cost orientation while not being related to technological orientation. Second, it is found that the adoption of customer orientation is positively related to the profitability of both Japanese and American entrepreneurial firms, although the effect is stronger in the US. It is also found that the adoption of technology orientation is negatively related to the profitability of both Japanese and American firms, although the effect is less negative in Japan. Finally, it is found that the adoption of cost orientation does not have an impact on the profitability of either Japanese or American entrepreneurial firms. Originality/value – This is one of the first studies to examine how founders of entrepreneurial firms use their personal disposition to shape the strategic orientation of their firm.

The Influence of Changes in Social Capital on Firm–Founding Activities

This study examines how founders can manage changes in their network ties during firm founding. We find that an increase in tie strength is negatively associated with founding activities, whereas an increase in the number of ties is positively associated with founding activities. Furthermore, entrepreneurial intensity mitigates the negative relationship between an increase in tie strength and founding activities; and social competence reinforces the positive relationship between an increase in the number of ties and founding activities. Our study contributes to the social capital literature by theorizing and testing how changes in a founder's network structure can be beneficial to founding activities.

Entrepreneurial talent and venture performance: A meta-analytic investigation of SMEs

As the broad link between small and medium-sized firm activity and key policy goals such as employment or economic growth has become generally accepted, the conversation has focused on a more nuanced understanding of the entrepreneurial engines of economic activity. A significant body of research looking at antecedents to venture performance has identified that entrepreneurial talent variables account for meaningful differences in venture performance and that significant heterogeneity exists across performance measures. These are important issues for institutions and policy makers seeking to achieve specific economic goals (e.g., survival or growth of ventures, employment or revenue). Using meta-analysis, we integrate this work to view connections between aspects of entrepreneurial talent and different performance outcomes. Our investigation includes 50,045 firms (K of 183 studies) and summarizes 1002 observations of small and medium-sized firms. Analysis of these data yields an unexpectedly weak connection between education and performance. Furthermore, growth, scale (number of employees) and sales outcomes are significantly related to planning skills, while profit and other financial and qualitative measures are strongly connected with the network surrounding the firm founders. Moreover, we observe that entrepreneurial talent is more relevant in developing economies.

Economic and Technological Importance of Innovations in Large Family and Founder Firms

Prior research has analyzed R&D spending in family and founder firms. Yet little is known about the economic and technological importance of innovations in these types of firms. Using patent citation data, we show that founder-managed firms, which we argue favor an entrepreneurial orientation, receive more patent citations when compared with other firms, even controlling for R&D spending. By contrast, family-managed firms, many of which, we argue, pursue socioemotional wealth for the family, receive fewer patent citations compared with other firms, again, controlling for R&D spending. Patent citations have been shown in the literature to reflect the economic and technological importance of innovations.

Escaping the Prior Knowledge Corridor: What Shapes the Number and Variety of Market Opportunities Identified Before Market Entry of Technology Start-ups?

The choice of the firm's market environment is one of the fundamental decisions of firm founders. We study the pre-entry generation of founders' market choice sets by investigating their search for market opportunities in which the firm's technological resources, as embodied in a product or service, can be commercialized. Analyzing data collected through personal interviews with founders of 496 technology ventures, we find that founding teams with more diverse industry experience and more diverse external knowledge sourcing relationships identify not only a larger number of but, in particular, more varied (distant) market opportunities. However, the extent to which strategic variety of such opportunities is identified depends on the founders' technological expertise, whereas technological expertise is less relevant in identification of the number of opportunities. Furthermore, by showing that the extent and nature of the firm's pre-entry opportunity set has a significant effect on the likelihood of subsequent firm diversification, we document how initial constraints in founders' choice sets can have a lasting impact on the growth potential that the new firm exploits over time. We discuss the implications of our findings for the literatures on organizational learning and innovation, entrepreneurship, as well as the strategy literature examining firm growth, diversification, and value creation.

Are Family Firms Better Performers During the Financial Crisis?

This paper provides new evidence examining whether family firms were better performers during the global financial crisis (2008-2010). Using the dataset of the S&P 500 non-financial firms during the period of 2006-2010, we find that family firms outperform non-family firms during the crisis. Moreover, it is the sub-group of family firms, founder firms, i.e. those where the founder is present that contributes to the outperformance. We also find that during the global financial crisis, founder firms invest significantly less and have better access to the credit market than non-family firms. Our analysis suggests that the superior performance of founder firms is largely caused by less incentive to over-invest in order to boost short-term earnings during the crisis.

How 'Buzz' Reduces Uncertainty for New Start-Up Businesses

Although the mechanisms through which entrepreneurial knowledge is transferred are poorly understood, we argue that face-to-face networks and buzz is a mechanism to transfer the knowledge of from whom to take advice before starting a business. business advice to new firm founders is a good example to study buzz outside of clusters and pipelines because new firm founders are not in any particular cluster and pipelines to global advisory services are generally absent.. The study examined the interaction between place and business advice was examined through surveys of 599 firms in England and 381 firms in Catalonia (Spain). Our models exploit the denominator from a heteroskedastic probit to capture the local variation in uncertainty by placing the source of the variation in the denominator. Normally heteroskedasticity is thought of as a problem, but in this case, it can serve to show how the impact of advice varies. Our findings show that buzz influences both advice taking and the uncertainty surrounding advice to show empirically a mechanism that links buzz to collective institutions outside of clusters. While our focus was on the impact of place and buzz, there were strong impacts from policy on the take-up of advice in Catalonia, but policy did not change the variations or uncertainty. buzz and policy do not directly trade-off since they have differing impacts.

Knowledge transfer methods between founder firms and corporate foundations

This article investigates the impact of knowledge transfer (Goh, 2002) from founder firms to the Corporate Foundations (CFs) on the CFs’ effectiveness. Starting from a typology of CFs’ effectivenes...

“Tigerblood”: Availability Cascades, Social Media, and the Environment of the Entrepreneurship

Availability cascades are defined as disproportionately large increases in public discourse on certain events or topics which give rise to the ubiquitous use of the availability heuristic, thereby induce biases in decision-making. Empirical investigation into availability cascades in the social sciences is limited, especially in contexts where decisions are made in the face of considerable uncertainty. In this paper, we study the impact of availability cascades originating from two sources, the print and social media, in the context of technology-based entrepreneurship. First, we explore the conditions under which the rise of an availability cascade influences the nascent entrepreneur’s decision to incorporate a firm in the specific technology domain experiencing the cascade. Second, we test the effect of the availability cascade on the time taken for a nascent entrepreneur in the specific technology domain experiencing a cascade to receive first-round funding from a venture capitalist. Our results show the positive effect of both the social media information cascade as well as the print media information cascade on firm founding and first-round funding. Additionally, we show that the social media cascade mediates the relationship between the print media cascade and firm founding / funding, thereby showing the agenda-setting nature of interactive social media in the context of technology entrepreneurship. We test these hypotheses on entrepreneurship data obtained from VentureXpert and the Census Bureau, augmented with social media data from the three largest blogging platforms and print media data from newspaper articles collected through the Internet between 1995 and 2007. Our results provide evidence for the effect of availability cascades on the two decision-making contexts we address and also show support for the hypothesized mediation effect. Our work here is the first, to our knowledge, to show directly how social and print media may interact in influencing entrepreneurial decisions in a decentralized manner and also provides evidence on how social media plays an increasingly important role in agenda-setting in the economy.

Family Firms & Stakeholder Management: Socioemotional Wealth in Stakeholder Management Strategies

This study explores the influence of socioemotional wealth upon stakeholder management strategies of family firms relative to non-family firms. We do so by building predictions of antecedents to stakeholder management strategies of family firms relative to non-family and founder firms. In doing so, we (1) empirically examine contextual circumstances influencing firm stakeholder strategy, using Freeman’s (1984) generic strategies; and (2) explore the role of ownership structure and specifically family ownership in stakeholder management. We suggest that the preservation of SEW exacerbates conflict between family firms and minority shareholders, but declining performance or increasing business risk are more likely to entice family owners to cooperate with shareholders, in an attempt to preserve SEW.

The dynamics of voting ownership in lone-founder, family-founder, and heir firms

We examine ownership dynamics in listed founding-family firms over the period 1996–2008. In order to enlarge the understanding of persistence of ownership influence, we analyze determinants of change in the light of family-firm heterogeneity. We detect ownership decreases and increases, alike. A Large Drop of ownership (at least −2.5%) occurs 4 times as often as a Large Increase. The mean negative change is −3.1% (median 0.0%), positive changes average 0.6% (median 0.0%). Foremost, owner identity characteristics and management board participation of individual blockholders explain the likelihood of ownership dynamics. Specifically, Lone Founder Firms show the most dynamical ownership structures in all regression scenarios. Heir Firms have the most robust ownership structure and are – on average – majority controlled by a family. They are less likely to reduce their ownership influence. Family Founder Firms are only changing ownership when the family forgoes to comply with the blocking minority of 25% plus one share further. We interpret all results in the light of identity, agency, stewardship, and financial theory. Thereby, an unbalanced panel (2529 firm years) of founding-family firms listed in the German CDAX market index at Frankfurt Stock Exchange (FSE) represents the empirical foundation.

Blood and Money: Kin Altruism and the Governance of the Family Firm

This paper develops a theory of governance and inheritance within family firms based on kin altruism (Hamilton, 64). Family members weigh the payoffs to relatives in proportion to relatedness. The theory shows that family management entails both costs and benefits. The attenuated monitoring incentives associated with kin altruism produce a ``policing problem'' within family firms. This policing problem results in both increased managerial diversion and increased monitoring costs. Relatedness has conflicting effects on manager--owner compensation negotiations. On the one hand, owners are more willing to concede rents to family managers to increase total value. On the other hand, because family managers internalize the costs to the family from their rejection of owner demands, relatedness lowers managers' reservation compensation level. Lower compensation leads to more diversion and costly monitoring. Firm founders anticipate the costs and benefits family control when designing their bequests. For typical family trees, kin altruism ensures that founders' preferences are much more closely aligned with value maximization than those of any of their descendants'. Thus, founder bequests are designed to weaken closer relatives' bargaining power in posthumous negotiations with more competent distant relatives.