ENDING THE MENDING WALL: EXPLORING ENTREPRENEUR – VENTURE CAPITALIST CO-LOCATION IN NEW ITVENTURES

Venture capitalists and the entrepreneurs they fund are observed to be co-located in order to enable both parties to extract value from their respective investments. This co-location may be relaxed in different conditions. In this paper, we explore conditions under which entrepreneurs not co-located with venture capitalists are still funded. Using the mechanisms of legitimacy and efficiency, we show that fashionability of the entrepreneurial venture’s technology or product can lead to venture funding when the entrepreneur and the VC are not co-located. Similarly, entrepreneurs who are co-located with a highly visible business partner or who possess original intellectual property also have higher odds of funding when not co-located with the focal VC. Finally, we show that these effects are heightened during the Internet boom of 1995-2000, characterized by mimetic contagion. The analysis is conducted on a sample of 44,057 new ITbased ventures funded in North America between 1985 and 2006

When Do Vendors Benefit from Relational Governance? Contracts, Relational Governance and Vendor Profitability in Software Development Outsourcing

We examine the interacting effect of formal contracts and relational governance on vendor profitability in the software outsourcing industry. We argue that the presence of relational governance is driven by perceptions of exchange hazards. In a departure from extant literature, we propose that its benefits depend on the manner in which exchange risks are shared. Specifically, we hypothesize that relational governance provides benefits to an exchange partner only in those contracts in which they are exposed to greater risk. We test these arguments by examining 105 software projects completed by a software vendor. We conclude with a discussion of the implications of our findings

Too Risky to Bid? Women in OLMs and STEM Competitive Environments

Online labor markets (OLM) are increasingly common sources for identifying trained individuals for technological work. Yet, like much of the tech industry, OLMs suffer from under-representation of women. We examine why women may choose not to participate in bidding for software development and analytics projects on OLMs. We theorize that pertinent project factors – project complexity and overall project competition – increase the risk profile of such work and disproportionately dissuade women from bidding for these projects, relative to men. We test these hypotheses using experiments conducted on Amazon Mechanical Turk (AMT). Comparing the effect of higher project complexity, greater boundary spanning requirements, and higher competition on the propensity to bid for riskier projects for women versus men, and on the bid amount issued when they do bid, we find that women are indeed deterred by project complexity in their bid decision (and to bid lower amounts), but are more likely to bid for projects with higher boundary spanning requirements or more competition. We contribute to the IS literature by establishing the specific factors affecting women’s participation and wages in OLMs and suggest several actionable managerial insights to make OLMs more inclusive and attractive to women in IT

IT Infusion and its Performance Impacts: An Empirical Analysis of eProcurement in the Service Industry

This paper examines the infusion of e-procurement applications along two dimensions of usage – intensity and organizational acceptance – and tests the relationship between use and procurement performance. Drawing upon the resource-based view of the firm, this paper tests the relationship between select organizational resources and e-procurement infusion in the context of procurement of indirect materials and services. The research model is estimated with survey data obtained on 193 organizations from the service sector. Data are analyzed using structural equation modeling. The results suggest that while organizational integration and business knowledge of IT managers are significantly related to only organizational acceptance of e-procurement, procurement process readiness and organizational slack resources are related to both the dimensions of e-procurement infusion. Our results also show that both dimensions of e-procurement infusion are positively related to procurement performance while their interaction effect on performance is negative. Theoretical and practical implications of these results are discussed

The Asymmetric Benefits of Relational Flexibility: Evidence from Software Development Outsourcing

In this paper, the interacting effect of formal contracts and relational governance on vendor profitability and quality in the software outsourcing industry are examined. We focus on a critical manifestation of relational governance—the presence of relational flexibility in the exchange relationship—and argue that the enacted observation of relational flexibility is driven by perceptions of exchange hazards. In a departure from extant literature, however, we propose that the benefits accruing from it are asymmetric and depend on how the exchange risks are apportioned by the formal contract. Formally, we hypothesize that relational flexibility provides greater benefits to an exchange partner that faces the greater proportion of risk in a project, induced through the contract. In addition, we hypothesize that these benefits manifest on the performance dimensions that are of importance to the risk-exposed partner. We test our hypotheses on 105 software projects completed by a software outsourcing vendor for multiple clients. The results show that relational flexibility positively affects profitability in only fixed price contracts, where the vendor faces greater risk, while positively affecting quality only in time and materials contracts, where the client is at greater risk. We thus provide evidence for the asymmetric benefits from relational governance, thereby arguing for a more contingent and limited view of the value of relational governance, based on risk-exposure, rather than the more expansive view prevalent in the literature contending that relational governance provides benefits for all parties to an exchange. We conclude with a discussion of the research and managerial implications of our findings

Ending the Mending Wall: Herding, Media Coverage, and Colocation in IT Entrepreneurship

The advent of the Internet and the maturation of the information technology (IT) industry has significantly decreased transaction and coordination costs. However, there is still a strong preference for being geographically proximal, notably when accessing capital markets for innovation activities, such as the formation of funding ties between venture capitalists (VCs) and new IT ventures. While VCs prefer to support colocated entrepreneurs, significant evidence suggests that the funding of nonlocal IT entrepreneurs does occur. In this work, we investigate how trends in the form of herding and media coverage, which are not specific to the entrepreneur but pertain to the technology sector in which the entrepreneur operates, may influence VCs to reach across geographic boundaries. Using a series of matched sample methodologies, results suggest that the influence of media is significantly stronger for VCs considering funding non-colocated, as opposed to colocated, IT entrepreneurs. However, and strikingly, support for the effect of herding is notably weaker. Managerial and policy implications, particularly for technology entrepreneurs and policy makers seeking to support such innovators, are discussed within

Board Independence and Firm Performance in the IT Industry: The Moderating Role of New Entry Threats

Prior research on corporate governance has offered contradictory empirical evidence on the relationship between the independence of the board of directors (the degree to which the board consists of outside directors who are not affiliated with the company) and firm performance. Building on the contingency view of corporate governance, we argue that the presence of significant new entry threats (NET), a unique feature that differentiates the IT industry from many other industries, is a critical contextual variable that moderates this relationship. Leveraging a novel NET measure based on text mining, we show that facing high NET, firms with boards that have a higher proportion of independent directors, who contribute to explorative organizational learning, carry out more effective monitoring, and offer independent opinions in strategic decision making, outperform firms with fewer independent board members. To address the endogeneity of board independence, we use the enactment of the Sarbanes-Oxley Act and related changes to the NYSE/NASDAQ listing rules as exogenous shocks; we show that our results are robust to the correction for endogeneity issues. Further, we show that our findings are generalizable to other high tech industries that face significant threats of new entry emerging from fast-moving industry dynamics. However, these results do not extend to slow-moving industries that have a stable market structure and thereby face lower and more homogenous levels of NET. We discuss the implications for future research, and provide managerial guidelines for practice as well