MSc Business Administration - Strategic Innovation Management
Venturing into governance dynamics
The relation between change of directors and performance for technology
ventures, and the influence of multiple shareholders
By
Toufic Elcure Alvarez
S2858207
Supervisor: I. Estrada Vaquero
Co-supervisor: N. Balogh
Co-assessor: P.M.M. de Faria
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Abstract
Governance dynamics can play a crucial role in determining the performance of firms. Extant research has not extensively studied the relation between the potential effects that these dynamics have on performance. This gap is an opportunity to study the relationship that governance dynamics, represented by change of directors, have on performance. Technology ventures are used, given their likelihood to experience governance dynamics in contrast to non-technology ventures. Multiple regression analyses were performed on a sample of 82 wind farm in the United Kingdom. The results show a significant relationship between change of directors and performance, however contrary to the negative relation hypothesized, a positive one was found. No significant influence was found by the moderator in the form of presence of multiple shareholders. The results demonstrate that governance dynamics represented by change of directors are an interesting area that can help explain variations in performance for ventures. In future research the usage of dynamics could be combined with other elements that potentially help to develop more comprehensive models.
Keywords technology ventures, financial performance, governance dynamics, change in
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I. Introduction
In our globalised world firms face fierce competition and challenges related to uncertainty. These uncertainties are especially visible for firms dealing with new and complex technologies, due to the lack of certainty attached to technological developments. (Siriram & Snaddon, 2004). Therefore firms do not only deal with competition, but also adapting according to the technological trajectories (Martins, Marquez & Cruz, 2011). Technology-driven firms are argued to be dynamic, implying that any changes made affect the performance of the firm. Given the current relevance of a technology advanced society, this study researches technology ventures to understand how governance dynamics can affect performance.
Before proceeding any further is crucial to be aware of the terminology used in this paper in relation to technology ventures. Prior literature associate a venture to a small entrepreneurial firm or capital investments with a short to medium lifespan. However, in this study a venture is a firm that has a rather long term lifespan and that is owned by one or multiple owners, which will be further referred to as shareholders. When a venture has one shareholder it is referred to as an individual technology venture, while if there are two or more shareholders then it is considered to be a joint or collaborative technology venture. Governance dynamics affect technology ventures by the challenges they bring to governance and therefore also performance.
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occurrence in this setting in contrast to ventures that do not deal with complex technologies or innovations.
Governance dynamics are addressed in the post-formation stage of a technology venture, which is the focus of this paper. Based on literature two main stages for ventures can be determined that encompass different governance dynamics: formation and post-formation. There has been a preference in earlier literature for the formation stage. This preference was initially popularized by authors following the premise that once a venture is formed there is not much change occurring over time (Luo, 2001). Based on this perspective, authors intended to give answers to questions such as what is the most ideal type of governance form for a venture. However the focus has shifted from the formation stage of the ventures towards the post-formation stage in the latter scholarly work (Park & Russo 1996; Chung & Beamish, 2010). The shift is explained by authors such as Doz & Hamel (1998) who stated that managing the venture over time is usually more important than the initial formal design. Therefore the initial governance design remains of crucial importance, but other aspects gain more attention such as strategic changes and governance mechanisms that can greatly alter the outcome of the venture (Chen, Tzeng, Ou & Chang, 2007). From this point on, when referring to governance dynamics and technology ventures, it is done from the perspective of a post-formation stage unless stated differently.
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governance dynamics can pose problematic dilemmas, costs and can result in major consequences for technology ventures (DeFillippi, Grabher, & Jones, 2007).
A common studied relationship in governance literature is the one it has with performance. However, the scholarly work is not substantial in regards to the relation between governance dynamics and performance. One potential explanation for the lack substantial work are the lack of variety of indicators used to study governance dynamics. For example, prior literature on board of directors have examined the nexus between governance and performance (Cheng, 2008; Dalton, Daily, Ellstrand & Johnson 1998), without many indicators representing dynamics either. This offers the opportunity to expand the indicators for governance dynamics and board of directors literature, using the representation adopted in this study, in the form of changes in the board of directors. For this paper a context is also provided involving individual and multiple shareholders. This is based in the premise that extra governance dynamics occur by the presence of multiple shareholders, which are expected to affect the performance of the technology venture. The objective of this paper is to examine the relationship between governance dynamics represented by the change of directors and venture performance, while testing the effect that the presence of individual or multiple shareholders has on the relation acting as moderator. In order to accomplish this research objective the following research question was determined:
RQ What are the effects of governance dynamics in the form of changes in the board of
directors on the performance of technology ventures, and how does the presence of multiple shareholders moderates the relation?
The answer to this question is intended to contribute to the theory of governance dynamics and the board of directors literature. For managers this study seeks to help understand the role that governance dynamics have in a technology venture performance. This means yielding relevant knowledge in areas such as whether it is beneficial for performance to keep the governance dynamics low. Furthermore, depending on the presence or absence of multiple shareholders, managers would better understand whether controlling dynamics should become a priority in their ventures.
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to matter. Termination of directors positively impacted performance, while the addition of directors did not have any significant effect. Contrary to what it is expected, the presence of individual or multiple shareholders does not have an influence on the relationship between change in directors and performance. It is important to emphasize that hese results should be taken with caution and rather as indicators that the relation studied is interesting for future research, due to the low explanatory power from the models used.
This research starts by reviewing the relevant literature on the field of governance dynamics, and change of directors, performance and multiple shareholders. This is followed by the identification of the literature gap and purpose of the research. In order to answer the RQ, hypotheses are developed, which are graphically displayed in the conceptual model. Then, the methodology is discussed, and the results of the tests are presented. After, the discussion, conclusion and implications are presented. Finally the limitations and future research sections give closure to the paper.
II. Literature review
In the first section of this literature review prior literature that researched governance dynamics is discussed and how what elements they used to represent them.. The second section focuses on the relation between governance, represented by the board of directors, and performance. In here it is also addressed what contexts have been used to study the relation and why the presence or absence of multiple shareholders is a relevant and interesting context.
Governance dynamics
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In business literature, the definition of governance dynamics varies between extreme and moderate. The worst case scenario generated by high governance dynamics would be the termination of a firm. This could be considered by current studies as a rather narrow view, as it is an extreme result from dynamics together with other elements (Park & Russo, 1996). For this study a more reasonable definition is used, adapted from the work of Franko (1971) and Inkpen & Beamish (1997). In this paper governance dynamics determine the changes that occurred in ventures that could have major subsequent effects on the project. This description is perceived as appropriate for this setting because it refers to changes and their effects without emphasizing on the termination part.
The governance dynamics spectrum has high as well as low dynamics. If an organization experiences low dynamics, the benefits of termination are valued as less than the benefits its continuation provides (Inkpen & Beamish, 1997). Furthermore, are not the lack of changes but rather the presence of minimal changes. Having acknowledged the existence of low governance dynamics and considering that the goal of this research is to examine the relation between high governance dynamics in performance, the consequent literature and hypotheses emphasize that relation. Furthermore, given that the interest here is not about the unexpectedness of the change but rather the effects high governance dynamics generate, the changes in this paper that are used to represent the governance dynamics of the technology ventures can be either planned or unplanned.
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the board of directors (BOD), since change in shareholders has already been commonly used in literature.
The BOD acts on behalf of the shareholders (Janger, 1980). They monitor managers and make sure that the interests of the shareholders are in line with the strategy and operations (Harris & Raviv, 1978; Holmstrom & Milgrom, 1991). BOD is a mechanism present in diverse types of organizations, which has been examined from different perspectives. Directors have been addressed based on their role and characteristics (Adams, Hermalin &Weisbach, 2010), as well as their economic relevance (Ahern & Dittmar, 2012). For this research the selected representation for governance dynamics is the change in board of directors, which should be differentiated from just the board of directors' characteristics. Changes in the board indicate a more dynamic representation that has not received much attention in literature while board characteristics could be considered a rather static one that has been covered in academic research. Therefore, changes in the board of directors are expected to be a better representation than board of directors' characteristics.
Board of directors, performance and multiple shareholders
In prior literature performance in organizations has often been an indicator to account for success. Studies use performance in combination with different elements in search for meaningful relations that can explain how a firm can be successful. A common way to study performance in a venture is to analyze the relation it has with governance (Cheng, 2008; Dalton, Daily, Ellstrand & Johnson 1998). Literature has addressed the relation using diverse indicators such as ownership structure and board characteristics.
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attributes that to lack of variation on the indicators that are being used. Most of the focus has been into the traditional measures such as the ones previously mentioned. Thus, prior research has emphasized on static measures for board of directors that should not really be considered indicators of governance dynamics.
As stated by Chung & Beamish (2010) venture literature has addressed the relationship between dynamics and performance. However, there is not yet substantial work on the field to come to conclusions between governance dynamics and performance. Some scholars have even doubted the relationship between the two (Hennart & Larimo, 1998; Yan & Zeng 1999), others consider the relationship as a two way street because in several articles performance is used to measure governance dynamics (Parkhe 1991). They studied governance dynamics as the dependent variable, while suggesting that governance dynamics is an indication of performance failure.
Based on the work from Nicholson & Kiel (2007), the inclusion of a different setting is advised as it can be beneficial to explain better the link between governance dynamics and performance. Examples of those are context specific situations such the inclusion of industry homogeneity and regulation (Palia, 2000), general industry conditions (Finkelstein & Hambrick, 1996) or competitive conditions (Carpenter & Westphal, 2001). One setting that can be added to the list and that is going be used in this research is the presence of individual or multiple shareholders in the venture.
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Gaps in the literature
The objective of this paper is defined as to examine the relationship between governance dynamics represented by the change of directors and venture performance, while testing the effect that the presence of individual or multiple shareholders has on the relation acting as moderator. The board of directors has been extensively addressed in literature, and its relevance for the economic performance of business has been emphasized (Ahern & Dittmar, 2012). For both individual and joint technology ventures there are studies done in the field of BOD to test the relation with performance (Dalton, Daily, Ellstrand & Johnson 1998). However, most of the studies using BOD have focused on relatively static measures such as board size and independence (Eisenberg, Sundgren & Wells, 1998; Bhagat & Black, 1999), instead of addressing the relation from a more dynamic perspective such as board changes. This offers the opportunity to expand the indicators of governance dynamics being used. Also the opportunity to contribute to more variation in the BOD indicators. This paper uses the presence of individual or multiple shareholders as moderators, which to my knowledge have not been linked before. The reason behind this is to examine the context of shareholders, which has been presented as relevant for the success of ventures in literature (Chung & Beamish, 2010). Consequently, this is an exciting research setting as there are not conclusive results on the relation between change of directors effect and performance, while there has not been literature examining that relation in the presence of individual or multiple shareholders acting as moderator.
Hypotheses
hypothesis 1. The board of directors has been classified by scholars as a key governance
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The board of directors have crucial tasks such as the monitoring and aligning of interests between managers and shareholders (Oxley, 1997; Pisano, 1989). As a new board takes over, the monitoring and coordination of shareholders and managers can suffer, as the new board might lack legitimacy and expertise. Moreover, they might need some time to assume their role and establish routines to be effective (Karaevli & Zajac, 2013). Building on this argument one can point that outside directors would lack the firm specific knowledge to make well informed strategic decisions. This uncertainty in decision making could especially affect the short term performance of the organization as it could take time for the new directors to become familiar with the organization and its particular situation.
The board of directors tend to have independence from the shareholders and can determine the orientation that the venture is taking. By making changes of directors a venture could incur in administrative and contract renegotiation costs (Reuer & Arino, 2002). Therefore, changes in the board of directors can affect performance as BOD are considered as established mechanisms with routines. Interrupting these mechanisms and routines can have a negative impact on the venture competences (Amburgey, Kelly & Barnett 1993), potentially damaging the performance as competences are not allowed to be developed. The changes in directors are expected to hamper performance due to the time, costs and effort needed for reorganization.
Dynamics in the form of changes in the board directors are expected to have a negative linear effect in the performance of the technology venture by making it incur in renegotiation and reorganization costs, while interrupting the role of the directors as coordinating and monitoring mechanisms. Thus, I hypothesize:
H1: Changes in directors negatively affects the performance of technology ventures.
hypothesis 2. The premise described in the previous hypothesis is that governance
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the organization faces are internal and might involve disagreements between parties such as the shareholder, directors and managers. These disagreements between parties can result into change in the board of directors which is a key mechanism in the venture (Forbes & Milliken, 1999). In the case of multiple shareholders this is a problem that can cause different interests to appear and generate principal-agent issues (Cao & Cao, 2015). Hence, here is argued that ventures with multiple shareholders have to deal with potentially higher and more complex dynamics in the form of director changes, with negative effects on performance.
For ventures with two or more shareholders governance dynamics can arise more often and the dynamics' effects can be more pronounced as they involve more parties and more depth in the issues. Although involving more shareholders can result in the ability to reap benefits from collaboration, from this perspective the changes are expected to have a larger negative effect on performance. Shareholders that engage in joint ventures can face challenges and they should be able to face those in order to be successful (Cuypers, Ertug, Reuer & Bensaou, 2017). One of those is the risk of different interests (Luo, 2002). The expected negative effect of change in directors in performance can be exacerbated, as different shareholders intend to appoint directors that protect their interests (Atinc, Kroll & Walters, 2016). If there is an expected negative effect on performance due to change of directors, the presence of multiple shareholders can make the negative result more accentuated as shareholders desire to appoint directors that are aligned with their interests and terminate those that do not. When there are multiple shareholders these changes might require more time to be dealt with, as the outcome should be the agreement between two or more parties. Meaning that the process of decision making and adaptation after the change in BOD is expected to take more time and more costs with multiple shareholders than with an individual one, where there are less decision makers.
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Singh 2002; Saxton 1997). A dominant shareholder can provide stability to the project but it could also be seen as unfair by the shareholders with lesser shares. Those with lesser shares can aim to improve their position, while the dominant one would look to protect theirs. For the case of shareholders with equal control, they can engage in back and forth changes of directors to have their positions protected or improved as well. Overall there are dynamics added to the governance of a technology venture when there are multiple shareholders present. Thus, similar to the previous argument, about the different interests, multiple shareholders desiring to protect or improve their position can negatively affect the performance of the venture. Concretely, this can occur in the form of renegotiations of contracts for directors or shareholders.
In short, it is expected that technology ventures with multiple shareholders will have to deal with a higher number and more complex changes in contrast to individual technology ventures that imply negative consequences for performance. In other words when the moderator takes the form of individual shareholders, no changes are expected in the negative relation between change of directors and performance. On the other hand when the moderator adopts the form of multiple shareholders, it is expected to make steeper the negative relation between change of directors and performance. Thus, I hypothesize:
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Conceptual model
III. Methodology
Setting
Climate change has been a common topic of discussion on the global agenda for more than 20 years. The shift from fossil fuels to renewable energies (RE) is a transition necessary that counts with technologies and facilities that exist today (Resch, Held, Faber, Panzer, Toro & Haas, 2008). However, the transition is bound to go through a rather slow process due to the production cost advantage that fossil fuels have over renewable energies, as well as unstable production outcomes of some of the RE types. That is why countries have intended to develop ways that could speed up the process and incentivize the adoption of renewable energies such as policies and subsidies (Dewald & Truffer, 2011). An interesting area that can help to advance the development and adoption of renewable technologies is understanding the governance mechanisms relation with performance. By increasing the knowledge in this area, it can help potential shareholders to take the step towards forming RE technology ventures, facilitating the
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adoption of the technology and eventually improving it. That is why in this research the central elements are the development of collaborative and non-collaborative ventures in the renewable energy industry, specifically focused on governance dynamics and how they affect the performance of the venture.
This research focuses in the United Kingdom as territory of study and wind energy as industry. Wind energy is one of the RE types that has had a steady growth in the past years, it is relatively cost effective and has potential to be used in many landscapes of the world (Saidur, Islam, Rahim & Solangi, 2010). In 2008, the United Kingdom committed to the Climate Change Act (CCA) of 2008. This established the goal to reduce emissions by 34% for the year 2020 and by 80% for the year 2050, having 1990 as a baseline. The act was followed by the publishing of the Low Carbon Transition Plan in 2009, which established a more tactical plan of approach including policies and proposals to achieve the objectives of reducing carbon emissions (International Energy Agency, 2012). In the same report the International Energy Agency determines that in the UK the amount of wind generated power has increased by four times in the period between 2007 and 2012. A considerable growth is expected to continue until the year 2020. The commitment of the UK to wind energy is materialized by the fact that wind energy has been the renewable source with the highest growth in the last 3 decades.
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Figure 1
Total installed wind power capacity in the UK from 2001 until 2015 (Global wind energy council, 2015)
Sample size, data quality and data collection
This study's sample is a group of technology ventures that range between individual and joint ventures. There is a total of 82 wind farms, referred as technology ventures in the previous sections. The sample used to tests the hypotheses involves data collected from the years 2010 and 2011 for each farm. In this study the quality of the data was emphasized over quantity, and the data could be considered as high quality data. It includes information from the ventures, the management and the shareholders that are not usually available in the renewable energy setting nor in the case of governance literature. It is also important to emphasize that the data was manually collected from documents filed in directly by the venture employees. This can be considered as support to the claim of the quality of the data and that the focus was on the quality over quantity.
There were two main databases from where the data were collected. First, the website Companies House was used to gather internal information about the ventures such as date of incorporation, size of the venture, director changes, and profit and loss accounts. The Companies
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House website powered by the government of the United Kingdom containing company details in the territory. Second, the Orbis site was used to collect data on the shareholders such as shareholder size and shareholder age. Orbis is an online site that provides information on companies worldwide. The data collected resulted in an initial sample of 198 ventures with 396 observations in total, accounting for data on the years 2010 and 2011. The final number of 82 ventures was reached after filtering out more than 100 ventures, based on missing data relevant for the variables used in this study. The ventures were selected because they are involved in the production of wind energy, which is the setting of this research. The relation of the ventures in the sample with wind energy production is confirmed by the official registration of the firm's purpose, determined by their SIC code. In more than 90% of the projects included in the sample the code was 35110, which stands for "production of electricity". For the rest it was confirmed one by one that even though they lacked that specific code they still hold operations regarding wind energy.
To ensure transparency regarding the data collection it should be noted that the data that was collected for this research1 was shared with a colleague (Stefany Engelhardt) to form the final sample. However, the risks of overlapping results were ruled out because of different settings of study. This study's main topic include governance dynamics in the form of changed in directors, while my colleague deals with diversity.
Measures
The variables and the respective measures are presented below and they are summarized on table 1.
dependent variable. In this study the dependent variable is financial performance and it
is also referred from here on as DV. For the measure of performance, the method used is that similar to Porrini (2004) who developed a percentage of the performance with the reference of a focal year. In this case the performance is measured by the profit and loss made by the venture in the years 2010 and 2011, as a short term performance measure. Given that this study intends to
____________________________________________________________________________
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measure the effects of changes of directors in performance, a measure for the DV that captures change seems appropriate. Measuring the performance actually shows the variation of the performance of the ventures, which is not the case if absolute values were used without taking a base year as reference. The numbers are displayed in GBP and in total units. The following formula is defined for this measure: PL Change = (PL11 - PL10) / Absolute (PL10). PL stands for profit and loss, making PL 10 the profit and loss of 2010, while PL 11 the profit and loss of 2011.
independent variables. In this study the independent variable is change of directors and
it is also referred as IV. In order to measure the independent variable I follow the method used by Easterwood, Ince & Raheja (2002) to calculate change in the board of directors. Considering that in this study the goal is to calculate the changes in the board of directors with no differentiation between directors added and directors terminated the following formula is followed: Director Changes = (DT + DA) / D10. The total changes in directors is the number of directors terminated (DT) plus the number of directors added (DA), divided by the number of directors in the base year (D10).
The moderator is a dichotomous dummy variable that adopts the values of 0 for individual ventures and 1 for joint ventures.
control variables. The venture size variable takes the value of the electricity produced by
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Table 1
Variables and measures
Variable Measure
Dependent
Venture performance Difference between performance in the year 2011 and 2010, divided by 2010 as base year
Independent
Change of directors Directors added and the directors terminated between the years 2010 and 2011, divided by the total number of directors at the beginning of 2010
Moderator
Presence of individual or multiple shareholders
Dummy variable that is 0 for individual ventures and that is 1 for joint ventures
Control
Venture size Electricity production in Mega Watts per year
Venture age Number of years since date of incorporation until 2017
Shareholder size Total assets in the year 2010
Shareholder age Number of years since date of incorporation until 2017
Methods of analysis
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For testing the hypotheses a multiple linear regression is performed, using the software IBM SPSS. As it is shown in the previous section Measures, the type of values for the variables in this research, fit with the values that are required for a multiple linear regression. The dependent variables' values fall under the category of interval or ratio, while there are multiple variables used to explain the change in the dependent variables that can be classified between interval, ratio or dichotomous. For the process of testing the hypotheses diverse models are used to have a better understanding of the relations between the variables. All models test relations between certain variables and performance. Firstly, the control variables are tested to examine their effect on performance. Secondly, the moderator, presence of individual or multiple shareholders, is added and used together with the control variables. Thirdly, the independent variable, change of directors, are tested with the control variables, excluding the moderator. This test is particularly relevant for the first hypothesis. Fourthly, both the control variables are included with presence of multiple shareholders, as well as the change of directors, without the interaction effect between the latter two. Finally, all variables are used including the interaction effect between change of directors and the presence of individual or multiple shareholders. This test is relevant for the second hypothesis.
Given that the independent variable in this sample is composed from two types of changes (directors added and terminated) which could have different effects, there are two additional regression analyses done even though it was not part of the hypotheses. The goal with this is to examine whether the nature of the change (addition or termination) would influence the effect it has on the dependent variable. Furthermore, robustness checks are performed with different measures for the variables used for the main model.
IV. Results
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Table 2
Descriptive statistics and correlations
n = 82 * p < 0.01 ** p < 0.05 *** p < 0.001
Table 2 presents an overview of the descriptive statistics from the sample used in this research. The variables include the control, dependent and independent variables. The only one excluded from this table is the moderator, as it is a dummy variable with dichotomous value. As explained later in this chapter when dealing with the distribution of the data, the variables were transformed in this study. Therefore, it is not entirely meaningful to report the means and standard deviations for the variables. By examining the correlations between the variables it is found that there is correlation between two of the control variables. Specifically there is a negative correlation between venture age and shareholder size (-0.22, p < 0.05). In other words, for this sample the big shareholders appear to control relatively young ventures. Furthermore, the other correlation that can be appreciated in table 1 is between performance and change of directors. This indicates that changes in directors has an effect in performance (0.25, p < 0.05), which is interesting for this study as it relates to the hypothesis one in this study, and which is examined later in this section.
A test of multicolinearity was done to ensure that the relation between the dependent and independent variable were not the result of the relation between other variables. The tests indicated that there was no multicolinearity between variables. This was determined by examining the variance inflation factor (VIF). Scholars advice for the VIF to be lower than 4 or 5 to rule out multicolinearity (Rogerson, 2001). In the tests performed the colinearity between the
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variables was mostly reported to be between 1 and 2. The maximum value was 3.1, which does not exceed the limit of 4, making multicolinearity a ruled out issue in this study.
The results of the tests relevant for the hypotheses are presented in table 3 using change of performance as the dependent variable. The results and relations between variables are organized in table 3 using different models. Model 1 shows how the control variables affect performance. On model 2 the moderator, presence of individual or multiple shareholders, is added to the variables in model 1. On model 3 the change of directors is tested with the control variables, excluding the moderator. On model 4 both the control variables are included with presence of multiple shareholders, as well as the change of directors, without the interaction effect between the latter two. Finally, in model 5 all variables are used, including the interaction effect between change of directors and the presence of individual or multiple shareholders. In these models the unstandardized β is provided with the standard error within brackets.
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* p < 0.01 ** p < 0.05 *** p < 0.001
For hypothesis 2, one should refer to model 5 in table 3. It is hypothesized that the negative effect that changes of directors in performance is further negatively accentuated by the presence of multiple shareholders as moderator. Thus, the presence of multiple shareholders is expected to further negatively affect the potential negative effect of changes in directors. In model 5 it is shown that the only coefficient with significant value is the change of directors. Therefore there is no support for hypothesis 2 as neither the presence of multiple shareholders nor the interaction effect with change of directors resulted in a significant result. As in model 3, the adjusted R2 (0.015) in this model is relatively low, thus the significance of change in directors should be taken with caution.
Table 3
Regression analysis for hypotheses
M1 M2 M3 M4 M5 Venture size k -0.008 (0.040) 0.001 (0.039) -0.005 (0.040) 0.001 (0.039) 0.013 (0.040) venture age d -0.013 (.209) -0.058 (0.204) -0.015 (0.210) -0.058 (0.204) -0.077 (0.204) Shareholder size d -0.010 (0.013) -0.009 (0.012) -0.011 (0.013) -0.011 (0.012) -0.009 (0.012) Shareholder age s -0.009 (0.082) 0.012 (0.079) -0.010 (0.082) -0.013 (0.080) -0.017 (0.080) Presence of multiple Shareholders -0.023 (0.057) -0.043 (0.056) -0.050 (0.095) Change of directors 0.322** (0139) 0.337** (0.141) 0.461** (0.175) Change of directors * Presence
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Additional tests and robustness checks
Considering that the dependent variable was measured with the changes in directors, composed by directors added and directors terminated, it is relevant to see whether the nature of the change of the directors have a relevant impact on the performance of the venture. That is why additional tests were performed separating directors added from directors terminated. The independent variable, change of directors was replaced by directors terminated with relation to the year 2010 and directors added with relation to the year 2010. The results of these analyses are presented in table 4. In models 3 and 5 there were no relevant coefficients for the variables, which translates into lack of support for directors added having an effect on performance. On the other hand, in model 6 it appears that the directors terminated have a positive effect on performance (0.470, p < 0.05). For this model a R2 of 0.078 is presented, which points to a 7.8% of variability in the data explained by the model including the termination of directors in combination with the control variables. However, similar to the significant results found in table 3 model 3, results should be taken with caution as the adjusted R2 is low (0.017). Overall the tests performed in this paper deal with moderation, which can be accompannied in research by a graphical representation of the results. In other words, effects are plotted to enable easier interpretation (Dawson, 2014). For that reason based on the results of the tests shown in table 3 for the main analysis and in table 4 for the additional analyses, graphical representations were developed. However due to the lack of significance in the product term between variables, and consequently in the moderation, the figures with the plotted results should not be interpreted. Taking into account this lack of significance for the moderation effect the figures showing the results were included in the appendix 1, instead that in the main text. The figures showcase how the potential moderator of the presence of multiple shareholders can affect the relation between change of directors and performance.
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interpretation. Meaning that having the sample split into sub-samples could result in weaker reliability compared to the main model which would count with more observations.
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Table 4
Regression analyses for aditional tests
V. Discussion
Governance dynamics are studied using changes in the board directors as representation in this study. The aim is to examine the relation between dynamic representations of governance such as BOD changes with performance. In general, results of scholarly work between board of directors and performance have not yielded entirely conclusive results. Minor results or no link
M1 M2 M3 M4 M5 M6 M7 M8 Venture size k -0.008 (0.040) -0.005 (0.040) 0.000 (0.039) 0.004 (0.040) 0.011 (0.041) -0.012 (0.039) -0.008 (0.039) 0.003 (0.039) venture age d -0.13 (.209) -0.015 (0.210) -0.053 (0.207) -0.058 (0.208) -0.068 (0.210) -0.026 (0.203) -0.031 (0.203) -0.046 (0.202) Shareholder size D -0.010 (0.013) -0.011 (0.013) -0.008 (0.012) -0.009 (0.013) -0.008 (0.013) -0.011 (0.012) -0.012 (0.012) -0.012 (0.012) Shareholder age s -0.009 (0.082) -0.010 (0.082) -0.002 (0.081) -0.003 (0.081) -0.003 (0.081) -0.020 (0.080) -0.021 (0.080) -0.033 (0.080) Presence of multiple shareholders -0.023 (0.057) -0.035 (0.057) 0.016 (0.093) -0.046 (0.056) 0.039 (0.082) Directors added 0.344 (0.203) 0.359 (0.205) 0.455 (0.246) Addition of directors * Presence of multiple shareholders -0.338 (0.481) Directors terminated 0.470** (0.199) 0.497** (0.203) 0.730** (0.259) Termination of directors * Presence of multiple shareholders -0.599 (0.422) Constant 1.633*** (0.252) 1.674*** (0.255) 1.626*** (0.250) 1.642*** (0.252) 1.620*** (0.255) 1.644*** (0.245) 1.665*** (0.247) 1.646*** (0.246) R2 0.011 0.013 0.047 0.051 0.058 0.078 0.086 0.110 Δ R2 (Compared to model 1) 0.002 0.036 0.040 0.047 0.067 0.075 0.099 Adjusted R2 0.000 0.000 0.000 0.000 0.000 0.017 0.013 0.026
For all models n = 82 * p < 0.01
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between the two has been found by several studies. In these studies different measures have been used to represent the BOD with little success on finding meaningful and relevant results. For example Lawrence & Stapledon (1999), reported a relatively scattered and not robust correlation in the relation between directors that are independent and several performance measures. In another case Hermalin & Weisbach (1991) reported that there was no correlation in order to test the relation between board composition and firm performance.
In this paper the change of directors as a representation of governance dynamics was expected to have a direct effect on performance. I hypothesized that there would be a linear negative relationship between the two. This argument is supported by the TCE premise that changes in directors could imply transaction costs for the technology ventures, in the form of reorganization and renegotiations costs. I found significant relationship between the changes of directors and performance, but contrary to the hypothesis there was a positive linear relationship. However, this result should be taken with extreme care due to the low value that adjusted R squared had for this model. The low values for the adjusted R and in other models a value of 0 could have several explanations. Within the potential explanations one could argue for the low sample size compared to the number of variables used. A low fit between the model and the data is also a potential interpretation.
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when dealing with collaboration in ventures and testing its performance (Castañer, Mulotte, Garrette & Dussauge 2014). Therefore it is possible that the benefits of collaboration outweighs the negative effects created by the governance dynamics.
The answer to the first part of the research question in this study is that there are minor indications that changes in directors and director terminations do affect performance of technology ventures, but in a positive way rather than a negative way. For the second part of the research question it can be stated that there was no effect found regarding the role of individual or multiple shareholders as moderators of the aforementioned relationship. Further, I continue to explore the potential reasons to clarify the lack of strong and significant results in this study, and in the BOD literature. Earlier in this paper it was stated that the change of board of directors as a governance dynamic representation, could have a meaningful relation to performance. The following explanations also help to explain why a change of directors as a representation of dynamic governance could be a step towards the right direction but it might suffer from similar issues as more static representations such as board independence and diversity.
The characteristics of board of directors could have an effect on governance dynamics in the form of change of directors. I found indication that changes in directors and termination of directors have a positive linear effect on the performance of technology ventures. Taking into account that not much work has been done in the area of change of directors, and even results for the general board of directors remains inconclusive, it might be time to start looking towards more integrative approaches.
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directors (Golden & Zajac, 2001; Westphal & Fredrickson, 2001). In the hypotheses it was argued that costs are incurred by new directors because they lack legitimacy and might lack expertise about the firm and the industry. However, considering that the directors added would have already relevant experience to act in the board, the dynamics would be reduced. Then, mostly those ones without expertise could be expected to negatively affect performance.
Apart from the characteristics of the BOD that have been mentioned as potential explanations for the lack of strong results using change of directors affecting performance of technology venture, another element that can be used for explanation is the context where the changes occur. For the second hypothesis it was tested whether multiple shareholders would have an influence on the relationship between performance and dynamics. From the lack of significant results it seems that the presences of individual or multiple shareholders is not an entirely relevant element for this type of governance dynamics or that there is a need to complement the context to make it relevant. Similar to the argument which suggests that integrating change of directors with directors' characteristics could be beneficial, here I argue that the context used for the second hypothesis could be relevant if used with other elements such as antecedents for the changes of directors. This is supported by the premise claiming that the board of directors effect on performance is a really complex one, with little chance for current governance theories to explain it (Pettigrew 1992; Nicholson & Kiel 2007). Antecedents have been used in literature to explain the relation between BOD and performance. Examples of relevant antecedents include previous changes of shareholders and times of crisis represented by lower than expected financial performance.
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more relevant and reflect more meaningful impacts on performance compared to periods where the performance is as expected (Desai, 2016). In this study I did not address the effect of previous performance in the change of directors.
As a final explanation the lack of significant results for the second hypothesis and the low explanatory power for the first hypothesis could have been caused by the time span used to test the relations between the variables. Governance dynamics tend to manifest in periods for which a year might not suffice (Westphal & Fredrickson, 2001). Therefore testing changes recorded through several years to test the performance of the ventures, could have had more fruitful results. In this case this was not possible because this research was constrained to time limitations.
VI. Implications
In terms of theoretical implications, arguments for the relation between governance dynamics and performance were based on elements adopted from the TCE. This paper provides minor indications of a significant relation between governance dynamics represented by change of directors and performance of a venture. More specifically a positive relation is found between the two. Furthermore, there is indication that nature of the changes affects performance. The directors terminated seem to affect the performance of the technology venture, which is not the case for directors added. For the changes in general, the results differ in comparison to previous research that had covered the change of directors and performance, this paper found a positive relation between the two. Therefore, it contributes to minor results in the area of the BOD literature and governance dynamics. It should be recognized, that the variables used were not enough to yield conclusive results in the form of a strong explanatory model. This finding goes in line with research that has determined that the board of directors is a complex mechanism (Pettigrew 1992, Nicholson & Kiel 2007), which might need to be studied including a more comprehensive approach. The results in this research are an indication of the relation between changes of directors and performance, which could contribute to that comprehensive approach.
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changes in the board of directors or taking decisions that can lead to those outcomes. The results did not indicate a negative effect on performance. Just the opposite, there are indications that high dynamics can beneficial for performance. Therefore, governance dynamics could be associated to the adaptation of the venture towards improvement, in this case in the form of financial performance.
VII. Conclusion
The governance dynamics that arise during the post formation of technology venture are usually represented from the perspective of ownership structure and parent change (Yan, 1998). There has not been much research done using other types of representations or in contexts such as including individual and multiple shareholders. Implementing such contexts goes in line with the call of some scholars that have encouraged research to use diverse setting to study the relation between governance dynamics and performance (Nicholson & Kiel, 2007). The results determined that there were some indications that changes in directors and directors terminated had a positive linear relation with venture performance. The presence of individual or multiple shareholders as moderator in the aforementioned relation was not significant. The indications could be a good step towards studying BOD from the perspective of governance dynamics, however this is apparently not sufficient. In this study, the characteristics of the director changes were not covered, nor the antecedents where the changes occurred which could have an interesting addition to future models.
VIII. Limitations and future research directions
There are several limitations for this study that also open the possibilities for future directions of research.
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relation between governance dynamics and performance can be seen as a two way street that requires research that yields more conclusive results.
Second, this research had a limited sample size (82). Also the data was collected from the wind energy industry, which might have a particular type of board structures compared to other industries and which calls for caution when generalizing the results in this paper. As mentioned in the section Sample size, data quality and data collection, the focus of this paper lied in the quality of the data rather than on the quantity. And the initial number of observations was dramatically reduced due to missing data on the variables.
Third, the time window used in this research included only two years of observations. In this paper the assumption was made that governance dynamics would be manifested in a short term. In view of the topic of this study a two year frame could be appropriate to study change in short term performance and governance dynamics. I urge future researchers to take on the task to have a wider time frame for studies, given that governance dynamics tend to manifest in periods for which a year might not suffice (Westphal & Fredrickson, 2001). It is also interesting to examine whether governance dynamics manifest in a longer time frame, and whether taking more elements into account throughout the years could help explain better performance in technology ventures.
Fourth, a relatively simple approach was used with changes of directors as only representation of governance dynamics. Future studies could use a more rich approach including several variables to study governance dynamics or board of directors. Examples of these are BOD characteristics that could affect the impact of dynamics independence of the directors, diversity and industry expertise.
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literature, however there has not been much research done using board of directors as a representation of the ownership structure.
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X. Appendices
Appendix 1: Plotting results for the main test and additional tests
Figure 2: Moderating effect of the presence of multiple shareholders on the relation between change of directors and venture performance
1 1.5 2 2.5 3 3.5 4 4.5 5
Low Director changes High Director changes
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Figure 3: Moderating effect of the presence of multiple shareholders on the relation between directors terminated and venture performance
Figure 4: Moderating effect of the presence of multiple shareholders on the relation between directors added and venture performance
1 1.5 2 2.5 3 3.5 4 4.5 5
Low Director terminated High Director terminated
P er for m ance Individual sharholder Multiple sharholders 1 1.5 2 2.5 3 3.5 4 4.5 5
Low Director added High Director added
