Optimal financial contracting: control rights, incentives, and entrepreneurship

Fluck, Zsuzsanna

doi:10.1002/jsc.859

Cited by 7 publications

(3 citation statements)

References 67 publications

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“…Some seminal papers on asymmetrical information illustrate the underpinnings of information economics and explore the main effects of asymmetrical information. They have been used extensively as a foundation in the literature on entrepreneurial finance [13,16,46,[54][55][56][57][58][59][60][61][62]. These papers include that of Akerlof's theory of "lemons" [63], Jensen and Meckling's exploration of the principal-agent-problem in investor-investee relationships [64], Leland and Pyle's paper on the role of signalling in the IPO/share-issuing process [65], as well as Stiglitz and Weiss' model of "credit rationing" [66].…”

Section: Central Theories In the Entrepreneurial Finance Literaturementioning

confidence: 99%

“…Once the money has been delivered, there is an incentive for the entrepreneurs or managers to take on projects that are riskier than the ones originally agreed upon, which is particularly likely in the case of more intangible company assets [16,59]. Not only risk is a potential problem, the entrepreneur may invest insufficient effort or may indulge in expenses or make decisions that are not otherwise aligned with investor preferences [13,17,49,55]. This situation, described as moral hazard, is thus a central part of the principal-agent problem and is likely to increase with the amount of external funds needed [17] as well as with particularly low or high levels of entrepreneurial wealth [59].…”

Section: Central Theories In the Entrepreneurial Finance Literaturementioning

confidence: 99%

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The Rationality and Irrationality of Financing Green Start-Ups

Bergset

2015

Administrative Sciences

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Green start-ups contribute towards a transition to a more sustainable economy by developing sustainable and environmentally friendly innovation and bringing it to the market. Due to specific product/service characteristics, entrepreneurial motivation and company strategies that might differ from that of other start-ups, these companies might struggle even more than usual with access to finance in the early stages. This conceptual paper seeks to explain these challenges through the theoretical lenses of entrepreneurial finance and behavioural finance. While entrepreneurial finance theory contributes to a partial understanding of green start-up finance, behavioural finance is able to solve a remaining explanatory deficit produced by entrepreneurial finance theory. Although some behavioural finance theorists are suggesting that the current understanding of economic rationality underlying behavioural finance research is inadequate, most scholars have not yet challenged these assumptions, which constrict a comprehensive and realistic description of the reality of entrepreneurial finance in green start-ups. The aim of the paper is thus, first, to explore the specifics of entrepreneurial finance in green start-ups and, second, to demonstrate the need for a more up-to-date conception of rationality in behavioural finance theory in order to enable realistic empirical research in this field.

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Section: Central Theories In the Entrepreneurial Finance Literaturementioning

confidence: 99%

Section: Central Theories In the Entrepreneurial Finance Literaturementioning

confidence: 99%

The Rationality and Irrationality of Financing Green Start-Ups

Bergset

2015

Administrative Sciences

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“…While research in both entrepreneurial finance and sustainable entrepreneurship has individually thrived and developed strongly in the last decades (Mitter and Kraus, 2011; Thompson et al , 2011), there are few instances where the two research fields merge (Bergset, 2015; Bocken, 2015; Cumming et al , 2016; Randjelovic et al , 2003). The entrepreneurial finance literature examines different aspects of business finance at early stages of company development from both the supply and demand sides, such as investor and entrepreneurial behaviour (Cable and Shane, 1997; De Clercq and Sapienza, 2001), potential conflicts arising between the two sides due to asymmetrical information and moral hazard (Denis, 2004) as well as possible solutions in terms of contract design (Fluck, 2010). The sustainable entrepreneurship literature builds on the research streams of social entrepreneurship and environmental entrepreneurship, and studies entrepreneurship in which a contribution to sustainable development is integral to the core business of the companies (Schaltegger and Wagner, 2011).…”

Section: Introductionmentioning

confidence: 99%

Green start-up finance – where do particular challenges lie?

Bergset

2017

IJEBR

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Purpose The purpose of this paper is to shed some new light on the entrepreneurial finance of green start-ups, for which there has been little quantitative empirical evidence thus far. It explores what challenges green start-ups might experience when it comes to financial access. Design/methodology/approach The paper includes a survey of start-ups in Finland, Germany and Sweden and the separate evaluation of the “greenness” of participating companies’ product/service portfolios based on Eurostat’s Environmental Goods and Service Sector classification. A logistic regression is carried out for different company phases for two measures of challenges (“difficulty accessing finance” and “rejection by investor/funder”). Findings Green start-ups as an overall group cannot be said to have more challenges in access to finance. Particularly, a lack in business education and a high level of innovativeness, however, seem to be lead to more challenges for green start-ups in accessing finance compared to other start-ups. Research limitations/implications Further research might seek to identify which exact characteristics of innovative green start-ups lead to challenges in financial access, i.e. is it individual factors such as high risk levels, high investment sums, long development periods or a low return prospect – or is it rather a combination? It might, furthermore, be rewarding to investigate whether “interventions” of business-related training might reduce challenges. Social implications Suggestions are made for improved policy support to sustainable entrepreneurship in the case of green start-ups. Originality/value This research paper provides quantitative empirical analysis in a new research area, which has previously been predominantly theory based with some anecdotal observations as well as some early qualitative research.

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