Do old theories fit new contexts? New perspectives on corporate governance in entrepreneurial firms

Abstract

Corporate governance deals with the mechanisms used by organizations to enhance the power and accountability of key stakeholders who are responsible for generating, protecting, and distributing firm wealth. The extant literature has adopted four main theories to explain corporate governance mechanisms. Historically, agency theory has provided the first theoretical inroads in the field as it argues that the overarching aim of corporate governance is to minimize agency costs and conflicts of interest between the providers (principals) and users (agents) of financial capital (Filatotchev and Wright 2011). Agency costs include monitoring costs and efforts that are necessary to align the interests of principals and agents and mitigate information asymmetry, adverse selection, moral hazard and shirking behaviors. More recent theoretical developments include the resource-based view that underlines the role of directors and managers in gathering and deploying unique and valuable resources to achieve a firm’s competitive advantage (Wernerfelt 1984). Institutional theory researchers have focused on how institutions such as governments or culture influence corporate governance initiatives (Bell, Filatotchev, and Aguilera 2014). Finally, stakeholder theory enlarges the meaning of the firm from shareholders to stakeholders. It emphasizes values that go beyond simple economic profits. Through stakeholder theory, researchers investigate how corporate governance should be designed in order to create value for all stakeholders, as well as how stakeholders can influence corporate governance. Notwithstanding the value of previous studies and theories, the majority of the existing corporate governance literature has focused on large and publicly listed firms operating in obsolete segments of the economy. However, the business landscape has evolved alongside societal changes, both technological as well as cultural. Entrepreneurial firms have taken advantage of these changes to create new business models, radically shaping legacy industries such as car manufacturing (e.g., Tesla, Lucid Motors), movie making (e.g., Netflix), medicine (e.g., Moderna), transportation (e.g., Uber), banking (e.g., Revolut), hospitality (e.g., AirBnB), and fundraising (e.g., Kickstarter, Indiegogo), among many others. Therefore, it is important to understand whether existing theories fit the purpose of describing these new contexts and entrepreneurial ventures. In order to fill this gap, this special issue focuses on the intersection between societal changes – technological and cultural – and entrepreneurial firms. Most of these entrepreneurial firms are powered and influenced by new technologies and cultural shifts that have opened up immense possibilities for new business models and different sources of competitive advantage. The agency relations, resources, institutional settings and stakeholders in entrepreneurial firms operating in cutting edge technological environments are often very different from those in mature firms operating in obsolete environments, VENTURE CAPITAL 2023, VOL. 25, NO. 2, 117–133 https://doi.org/10.1080/13691066.2023.2178365