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Effect of power source mismatch on new venture performance

Effect of power source mismatch on new venture performance The venture capital syndication brings in various resources for the portfolio firms, which positively affects those firms’ performance, while conflicts within syndicates also have negative impact on the portfolio firms’ performance. This study aims to explore the two opposite effects of the venture capital syndication on the portfolio firms’ operations. Drawing on Ma et al.’s (2013) power source match perspective, the authors examine the effect of (mis)match of power source between ownership and status on the portfolio firms’ performance.Design/methodology/approachThe study uses panel data from two professional databases containing information about the venture capital-backed firms in China. The fixed effect model is applied to analyze the data.FindingsThis study found that power source match in the venture capital syndicates works positively on the portfolio firms’ performance. This positive relationship is weakened when there is ownership-dominated power source mismatch present.Practical implicationsThis study suggests that when new ventures search for venture capital, it is better to allocate greater ownership to the venture capital providers with high-status power, so that ownership power and status power can have a proper match to increase the coordination among venture capital providers, thereby helping portfolio firms perform better.Originality/valueThis study looks into the performance of a portfolio firm when there is power a (mis)match in a venture capital syndication, extending the current literature in this area where only the performance of the venture syndications is examined. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Chinese Management Studies Emerald Publishing

Effect of power source mismatch on new venture performance

Wang, Li; Jiang, Marshall Shibing
Chinese Management Studies , Volume 12 (4): 14 – Oct 10, 2018
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Publisher
Emerald Publishing
Copyright
© Emerald Publishing Limited
ISSN
1750-614X
DOI
10.1108/cms-07-2018-0589
Publisher site
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Abstract

The venture capital syndication brings in various resources for the portfolio firms, which positively affects those firms’ performance, while conflicts within syndicates also have negative impact on the portfolio firms’ performance. This study aims to explore the two opposite effects of the venture capital syndication on the portfolio firms’ operations. Drawing on Ma et al.’s (2013) power source match perspective, the authors examine the effect of (mis)match of power source between ownership and status on the portfolio firms’ performance.Design/methodology/approachThe study uses panel data from two professional databases containing information about the venture capital-backed firms in China. The fixed effect model is applied to analyze the data.FindingsThis study found that power source match in the venture capital syndicates works positively on the portfolio firms’ performance. This positive relationship is weakened when there is ownership-dominated power source mismatch present.Practical implicationsThis study suggests that when new ventures search for venture capital, it is better to allocate greater ownership to the venture capital providers with high-status power, so that ownership power and status power can have a proper match to increase the coordination among venture capital providers, thereby helping portfolio firms perform better.Originality/valueThis study looks into the performance of a portfolio firm when there is power a (mis)match in a venture capital syndication, extending the current literature in this area where only the performance of the venture syndications is examined.

Journal

Chinese Management Studies – Emerald Publishing

Published: Oct 10, 2018

Keywords: Portfolio firms; Power source match; Resource dependence theory; Venture capital syndication

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