Less is more, or not? On the interplay between bundles of Slack Resources, Firm Performance and Firm Survival

This is the author accepted manuscript. The final version is available from the publisher via the DOI in this recordAlthough a significant body of research has investigated the independent effects of distinct types of slack resources, current theoretical and empirical work does not sufficiently clarify how bundles of slack resources affect firm outcomes. Drawing on the resource constraints literature and the slack literature, we investigate how distinct bundles of financial and human resource slack influence firm performance and survival. Using a sample of 4715 European information and communication technology firms, we show that neither parallel resource abundance (having slack in financial and human resources) nor parallel resource constraints (lacking slack in financial and human resources) are optimal for firm performance and survival. However, firms with selective constraints that combine slack in financial resources with constraints in human resources exhibit superior performance without decreased survival prospects. Taken together, this study extends current research by providing a more nuanced view of the relationships between slack resources, firm performance, and firm survival.Hercules FoundationThe Research Foundation - Flander

Equity crowdfunding and governance : Toward an integrative model and research agenda

This is the author accepted manuscript. The final version is available from the Academy of Management via the DOI in this recordEquity crowdfunding markets have grown exponentially over the last few years. Despite this impressive growth, significant informational asymmetry problems may plague these markets, making them susceptible to difficulties and even market failure. In this paper, we depart from current equity crowdfunding research that focuses almost exclusively on the funding success and funding dynamics on platforms to study the effective governance of equity-crowdfunded (ECF) firms and how it relates to these firms’ success. We propose a conceptual model that identifies a multitude of governance mechanisms (e.g., internal or external and formal or informal) that potentially operate in equity crowdfunding markets to reduce adverse selection and moral hazard problems. Further, building on this framework, we offer a roadmap for future research that examines how different governance mechanisms may help in the selection and development of successful ECF firms.Research Foundation—Flander

The evolution of debt policies: New evidence from business startups

This is the author accepted manuscript. The final version is available from the publisher via the DOI in this recordWe investigate the evolution of entrepreneurial firms' debt policies over a period of 15 years after startup, considering leverage, debt specialization, debt maturity and debt granularity. Our analysis is based on a unique sample covering all non-financial Belgian firms founded between 1996 and 1998. We find that the debt policy of entrepreneurial firms is remarkably stable over time. The debt policy in the initial year of operation is a very important determinant of future debt policies, even after controlling for traditional contemporaneous determinants. The founder-CEO has an important impact on the stability of debt policies: the influence of initial debt policies on future debt policies is significantly reduced when the founder-CEO is replaced or when (s)he dies. Combined, our findings support imprinting theory.Hercules FundNational Bank of BelgiumGhent University Special Research Fun

Slack resources, firm performance, and the institutional context: Evidence from privately held European firms

This is the author accepted manuscript. The final version is available from the publisher via the DOI in this recordResearch summary: Integrating the behavioral and institutional perspectives, we propose that a country's formal institutions, particularly its legal frameworks, affect managers' deployment of slack resources. Specifically, we explore the moderating effects of creditor and employee rights on the performance effects of slack. Using longitudinal data from 162,633 European private firms in 26 countries, we find that financial slack enhances firm performance at diminishing rates, whereas human resource (HR) slack lowers performance at diminishing rates. However, financial slack has a more positive effect on firm performance in countries with weaker creditor rights, whereas HR slack has a more negative effect on performance in countries with stronger employee rights. The results provide a richer view of the relationship between slack and firm performance than currently assumed in the literature. Managerial summary: A key dilemma managers often encounter is whether, on the one hand, they should build in excess resources to buffer their firms from internal and external shocks and to pursue new opportunities or whether, on the other hand, they should develop “lean” firms. Our study suggests that excess cash resources—which are usually viewed as easy to redeploy—benefit firm performance, especially when firms operate in countries with weaker creditor rights. However, excess human resources—which are usually viewed as more difficult to redeploy—hamper firm performance, particularly when firms operate in countries with stronger labor protection laws. Thus, the management of slack resources critically depends on the characteristics of these resources (e.g., redeployability) and the institutional context in which managers operate. Copyright © 2016 John Wiley & Sons, Ltd.Research Foundation—FlandersNational Bank of BelgiumHercules FoundationKU Leuve

Untangling the multiple effects of slack resources on firms’ exporting behavior

This is the author accepted manuscript. The final version is available from Elsevier via the DOI in this record.Drawing on a behavioral theory perspective, we investigate how distinct types of slack resources affect distinct aspects of firms’ exporting behavior. Using longitudinal data of Belgian manufacturing firms, we find that financial and human resource (HR) slack affect the probability of exporting positively at a diminishing rate. Controlling for the export decision, we find that HR slack affects export intensity negatively, while financial and HR slack affect export diversity positively at a diminishing rate. Findings are economically meaningful, especially for new exporters. Taken together, our study adds new insights at the nexus of the international business and slack literatures.Research Foundation - Flander

Local banking development and the use of debt financing by new firms

This is the author accepted manuscript. The final version is available from the publisher via the DOI in this recordWe investigate the effects of local banking development on the debt financing of new firms using a large sample of Italian firms. Controlling for potential endogeneity issues, we find that new firms are more likely to use bank debt and have higher leverage in provinces with more bank branches relative to population. However, it is important to account for bank heterogeneity. For instance, more foreign banks in a province actually reduce access to bank debt. Taken together, our study provides new and nuanced evidence on the role of local banking development for the debt financing of new firms

A longitudinal comparison of capital structure between young for-profit social and commercial enterprises

This is the author accepted manuscript. The final version is available from the publisher via the DOI in this recordWe develop a new perspective on capital structure differences between for-profit social and commercial enterprises by combining imprinting and social entrepreneurship theory. Using a longitudinal matched sample, we find that for-profit social enterprises have 40% to 13% lower leverage and up to four times greater leverage stability over time than commercial enterprises. Our results suggest that these differences in capital structure derive from the process of prosocial organizing, which goes beyond the primary focus on financial preferences. Thus, for-profit social enterprises—and similar hybrid organizations, such as B corporations—may require theories adjusted to their context

Signal Strength, Media Attention, and Resource Mobilization: Evidence from New Private Equity Firms

This is the author accepted manuscript. The final version is available from the Academy of Management via the DOI in this recordPast research has shown that new firms can facilitate resource mobilization by signaling their unobservable quality to prospective resource providers. However, we know less about situations in which firms convey multiple signals of different strengths—i.e., signals that are more or less correlated with unobservable firm quality. Building on a sociocognitive perspective, we propose that prospective resource providers respond differently to signals of different strengths and that the effectiveness of signals, especially weak signals, will be contingent on the media attention new firms receive. Empirically, we conduct a longitudinal analysis examining the ability of new private equity (PE) firms to raise a follow-on fund. Consistent with our theory, we find that unrealized performance, a relatively weak signal, positively influences fundraising. But we fail to find statistical evidence that its effect is weaker than that of realized performance, a relatively strong signal. Further, media attention strengthens the relationship between unrealized performance and fundraising, but media attention exerts less impact on the relationship between realized performance and fundraising. Taken together, our findings deepen our understanding of how new firms can mobilize resources with signals of different strengths and of how the media—as a key information intermediary—differently impacts their effectiveness.Richard M. Schulze Family Foundatio

Ban, Boom, and Echo! Entrepreneurship and initial coin offerings

This is the author accepted manuscript. The final version is available from SAGE Publications via the DOI in this recordRegulatory spillovers occur when regulation in one country affects either the expected regulatory approach and/or entrepreneurial finance markets in other countries. Drawing on institutional theory, we investigate the global implications of a regulatory spillover on entrepreneurship. We argue that regulatory spillovers have both short- and long-term effects on the number and quality of entrepreneurial finance initiatives such as Initial Coin Offerings (ICOs). Based on a large-scale sample of ICOs in 108 countries, we find that a regulatory ban of ICOs in one country causes a short-term increase in the number of low-rated ICOs in other countries and a long-term drop in the number of ICOs, especially low-rated, which increases the average ICO rating. That is, a restrictive regulation triggered a process of increased market selection

Unemployment insurance and cash holdings of privately-held firms around the world

This is the author accepted manuscript . The final version is available from Wiley via the DOI in this recordResearch Question/Issue: This paper studies the relationship between country-level unemployment insurance and cash holdings of privately-held firms. When public unemployment insurance is weak, firms may provide alternative unemployment insurance by committing not to lay off workers in bad times. We hypothesize that one way firms can do so is by holding larger cash balances. Research Findings/Insights: Using a large sample covering 388,940 private firms from 32 countries around the world over the 2007-2014 period, we find a negative relationship between public unemployment insurance and cash holdings. This effect is driven by countries where public unemployment insurance is weak or non-existent. We also find that privately-held firms keep a larger part of their new debt issues as cash when public unemployment insurance is weak. Theoretical/Academic Implications: We contribute to a growing literature on an institution-based view of comparative corporate governance. We show that national governance factors and, more specifically, public unemployment insurance, which protects employees (an important butrelatively ignored stakeholder), influences firm cash holdings in a private firm context. Practitioner/Policy Implications: Our findings have important implications for policy design. Specifically, they suggest that labor market institutions designed to support employees can also indirectly benefit their employers because these institutions allow firms to reduce the opportunity cost related to holding larger cash balances