Information gap between entrepreneurs and investors lead to conflicts of interest
In his doctoral dissertation Henrik Keinonen describes how conflicts of interests in entrepreneur driven firms and in stock listed companies arise and how to alleviate them. Conflicts of interests emerge for example, when a potential used car buyer knows less about its defects than the seller.
Then we say that information is asymmetric. Similarly, some entrepreneurs may want to hide away certain critical information from potential investors before raising an investment or use the investment into private consumption later on.
Business angel networks (BANs) can help mitigating problems of asymmetric information. BANs are like dating agencies; they mediate the relationship between entrepreneurs and angel investors but also provide critical education and support for their members.
“Especially commercial BANs can reduce information asymmetries by active screening of investments, training and personal ties”, says Keinonen.
Professional venture capital investors (VCs) invest large sums. When VCs consider an investment in a firm, the team and the market potential is found to matter them most. What entrepreneurs look for in a VC is equally important but overlooked in previous research.
“When entrepreneurs and investors are able to better target their offerings to each other and build trust in their relationship less problems are expected to arise”, says Keinonen.
Some high-growth firms may end up being listed on the stock exchange. According to the Nordic corporate governance model large owners are beneficial because they maximize the value of their investment. However, some large owners may want to pursue their private benefits instead of maximize company value.
“For example, state owners may promote political interests such as saving jobs by letting an unprofitable company to run or let incompetent management run the company unmonitored. This is observed as a negative relationship between company value and growing government ownership in Finland”, concludes Keinonen.
You can read the doctoral dissertation here. Opens in new window
Henrik Keinonen will defend his doctoral thesis on 22nd of January 2022 at 12:00 (EEST). The doctoral defense will be held online through a videoconference. You can access the Teams videoconference by clicking this link Opens in new window .
Subject: Entrepreneurship, Management and Organisation
Opponent: Professor emeritus Hans Landström, Lund University
Kustos: Associate professor Tom Lahti, Hanken School of Economics