Advancing the interaction between finance and entrepreneurship

Citation

Wu, C.W.a.Z. (2013), "Advancing the interaction between finance and entrepreneurship", International Journal of Managerial Finance, Vol. 9 No. 4. https://doi.org/10.1108/IJMF-05-2013-0058

Advancing the interaction between finance and entrepreneurship

Article Type: Guest editorial From: International Journal of Managerial Finance, Volume 9, Issue 4

As the engine of economic growth and sustainability, entrepreneurial firms have attracted the attention of both academics and non-academics alike. However, their financial and financing issues require further investigation. A growing body of academic literature highlights important connections between finance and entrepreneurship. Several studies have pointed out the importance of new venture and small business debt financing (Berger and Udell, 2002; Chua et al., 2011). Others have explored various issues related to equity ownership and external financing of entrepreneurial firms, such as agency issues (Kaplan and Stromberg, 2001), venture capital (Bottazzi et al., 2008; Cumming and Dai, 2012; Cumming and Johan, 2010; Cumming and Knill, 2012; Tian, 2011), private equity (Cosh et al., 2009; Cumming et al., 2013), and family matters including ownership, governance, and succession (Chua et al., 2011; Wu et al., 2007).

As the global economy recovers from recession, academic researchers, entrepreneurs, private equity providers, creditors, and policy makers realize the importance of connecting finance and entrepreneurship, so that entrepreneurial firms can continue to contribute to the economic recovery and help revitalize the engine of economic growth. This special issue is devoted to advancing the frontier of knowledge related to the interaction between these two key fields. The papers add to the literature on entrepreneurial finance, and are expected to pave the way for future studies linking these fields by providing in-depth theoretical and empirical analysis along several diverse dimensions and from the perspectives of both entrepreneurial firms and external investors.

In the leading paper, Cumming and Johan (2013) present findings about how the external environment provided by technology parks affects entrepreneurial firm performance and access to external financing. Applying a global perspective across 13 countries and adopting a unique sample of survey questionnaires collected from entrepreneurial firms residing in technology parks, these authors point out the importance of the institutional and legal environment in facilitating entrepreneurial firm success. They focus on start-ups residing in technology parks, and they highlight the characteristics that play a key role in entrepreneurial success and financing. Their paper lays a foundation for future studies on the role technology parks can play in new venture financing, and it provides multiple directions for future research along these lines.

The second paper analyzes debt financing from the unique perspective of management (in)efficiency to explore the effects of corporate entrepreneurship. Chowdhury and Maung (2013) use a stochastic frontier approach to estimate managerial inefficiency, and they apply it to panel data collected from the Gulf Cooperation Council member countries to investigate how managerial inefficiency affects access to debt financing. Their findings help fill the gap in the entrepreneurial debt financing literature (Wu et al., 2007; Chua et al., 2011), which previously had not emphasized the impact of corporate entrepreneurship. This study enriches the agency theory-based literature on entrepreneurial finance by highlighting the link between entrepreneurship and managerial efficiency in listed companies.

The third paper again looks at entrepreneurial firms that are publicly listed. Wan and He (2013) study how entrepreneur bargaining power, as measured by the entrepreneur's compensation package, influences the lockup agreements bonded with an initial public offering (IPO). This paper goes beyond the view of simply identifying economic factors determining IPO lockups and extends the literature to include relative power-based decision-making processes in the field of management by applying political power theory. The findings complement the theory of IPO-lockup determinants, and they pave the way for further research on entrepreneurial incentives provided by executive compensation. Such future research could relate to agency and other theories, such as the recent theoretical development in explaining entrepreneurial behaviors using non-economic factors such as those addressed by socio-emotional wealth (Gómez-Mejía et al., 2007; Zellweger et al., 2012).

In the fourth paper, Zhang and Huang (2013) investigate entrepreneurial firm performance in China during the 2008 financial crisis by applying a comparative-study approach. One of the questions this study answers is whether group-affiliated entrepreneurial firms outperform group-affiliated non-entrepreneurial firms. China provides a natural setting for this research question because both entrepreneurial firms and state-owned enterprises exist simultaneously, and business group affiliation is a common organizational form.

The last paper of the special issue on Finance and Entrepreneurship is a theoretical study that calculates optimal exit strategies of venture capitalists. Li et al. (2013) apply optimal control techniques and optimal-stopping methodology used in the options-pricing literature to derive a numerical solution for the early-exit region, and they perform simulations to demonstrate how firm and venture capitalist characteristics affect the exit region. Propositions proved in this paper can serve as empirically testable hypotheses for future studies, which would provide useful implications for both entrepreneurs and external investors.

In summary, the papers in the special issue advance the frontier of research on several facets of the interaction between finance and entrepreneurship, which in turn generate important implications for entrepreneurs, investors, creditors, institutions, and policy makers. We would like to thank all of the authors who submitted papers for consideration, as well as our referees who contributed significantly to the development of the submitted papers. We would also like to thank the editor David Michayluk, as well as the editorial office, for their strong support during the process of organizing this special issue. Finally, we are also grateful to the Shanghai Institute of Foreign Trade for hosting the associated conference and for providing the authors with a great platform to further develop their research.

Craig Wilson and Zhenyu Wu
Guest Editors

References

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Chowdhury, R.H. and Maung, M. (2013), “Corporate entrepreneurship and debt financing: evidence from the GCC countries”, International Journal of Managerial Finance, Vol. 9 No. 4, pp. 294-313

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