The Principal Agency Theory
Besley and Brigham (2006) stated that principal agency relationship occurs when the owner engages an agent to perform a service on his/her behalf. The principal delegates decision making authority to the agent. In VC financing, the principal-agent relationship do exist between the VC investor and the entrepreneur. Gatsi (2012) asserts that such delegation comes with problems such as goal differences and information asymmetry. The agent, (the portfolio company owners) may be tempted to serve their own interests at the expense of the principal (investors) who own the funds. Therefore goal differences result in the principal agency problems. The choice and timing of exit and entry can be strongly influenced by desire …show more content…
The companies are matched in accordance with the province in which the companies are located, sector of activity, age and size in the year in which VC financing was obtained. They consider both early and mature stage financing, including restructuring and MBOs/LBOs. The average growth of the enterprise in terms of sales, employment and total assets from the event year up to the third year after the event are computed. A distinction is made according to the stage of each firm’s life, (that is, start-up, growth and mature), in which VC financing was acquired. The conclusion they reached at is that VC financed companies do outperform their non VC supported counterparts if VC investment is injected in the start-up or growth stage.
On the other hand, Bottazzi and Da Rin (2002) likewise considered growth of sales and employees in the three years that follow an IPO in a sample composed of 511 companies that were listed in the Euro. They reached the conclusion that, everything being equal, VC financing has no effect on employment growth although it may have a moderate negative effect on sales growth. Thus, these two contrasting revelations portray a serious methodological …show more content…
9 no. 6, 2003).
In their study of the impact of VC financing on the growth of SMEs in Kenya, Memba S. F., Gakure W. R. and Karanja K. (2012), established that, VC financing has real and practical impact on growth of SMEs. Their research based on 200 firms that were beneficiaries of VC finance established that upon use of venture capital, the minimum profit increased by at least 94%; the average net assets also increased by a minimum of 36.3% and that after employing there was a remarkable increase in total number of employees by 186%. This increase in the profit, value of net assets and number of employees after use of venture capital is a clear testimony to suggest that the SMEs experienced
Besley and Brigham (2006) stated that principal agency relationship occurs when the owner engages an agent to perform a service on his/her behalf. The principal delegates decision making authority to the agent. In VC financing, the principal-agent relationship do exist between the VC investor and the entrepreneur. Gatsi (2012) asserts that such delegation comes with problems such as goal differences and information asymmetry. The agent, (the portfolio company owners) may be tempted to serve their own interests at the expense of the principal (investors) who own the funds. Therefore goal differences result in the principal agency problems. The choice and timing of exit and entry can be strongly influenced by desire …show more content…
The companies are matched in accordance with the province in which the companies are located, sector of activity, age and size in the year in which VC financing was obtained. They consider both early and mature stage financing, including restructuring and MBOs/LBOs. The average growth of the enterprise in terms of sales, employment and total assets from the event year up to the third year after the event are computed. A distinction is made according to the stage of each firm’s life, (that is, start-up, growth and mature), in which VC financing was acquired. The conclusion they reached at is that VC financed companies do outperform their non VC supported counterparts if VC investment is injected in the start-up or growth stage.
On the other hand, Bottazzi and Da Rin (2002) likewise considered growth of sales and employees in the three years that follow an IPO in a sample composed of 511 companies that were listed in the Euro. They reached the conclusion that, everything being equal, VC financing has no effect on employment growth although it may have a moderate negative effect on sales growth. Thus, these two contrasting revelations portray a serious methodological …show more content…
9 no. 6, 2003).
In their study of the impact of VC financing on the growth of SMEs in Kenya, Memba S. F., Gakure W. R. and Karanja K. (2012), established that, VC financing has real and practical impact on growth of SMEs. Their research based on 200 firms that were beneficiaries of VC finance established that upon use of venture capital, the minimum profit increased by at least 94%; the average net assets also increased by a minimum of 36.3% and that after employing there was a remarkable increase in total number of employees by 186%. This increase in the profit, value of net assets and number of employees after use of venture capital is a clear testimony to suggest that the SMEs experienced