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Top Managers in Entrepreneurial Firms: Who Is Running the Show?
Kulchina E. and Venancio A.

New venture teams have a strong impact on firm performance, and researchers have long been interested in understanding how entrepreneurs select co-founders and early employees. In this paper, we examine how entrepreneurs choose top managers for their ventures. Founders often lack the necessary skills and motivation for managing their firms personally and hire professional managers instead. We find, however, that entrepreneurs have a strong tendency to hire managers who are similar to them, even when this may negatively affect firm performance. Our results are consistent with the idea that founders choose managers with similar demographic characteristics, such as age, nationality, and education, due to homophily. Yet they hire managers with similar industry experience because such similarity is good for the firm.

Keywords: top manager, entrepreneur, founding team

Entrepreneur—A Jockey or a Horse Owner?
Kulchina E. and Gjerløv-Juel P.

The business literature has long been concerned with understanding why people become entrepreneurs. This literature, however, has mixed together two important issues — founding a new business and being the right person to operate it. Up until recently, entrepreneurship scholars have largely believed that founders run their ventures personally. Yet it is not clear from either a theoretical or an empirical standpoint why this should be the case. Indeed, entrepreneurs are often criticized for having limited business expertise and placing personal motives ahead of financial returns. Whether founders are optimal managers for their firms strongly depends on their motives for operating the firm personally, i.e., whether their decision is driven by expected non-pecuniary benefits of management or by more strategic considerations. In our paper, we use fine-grained data on entrepreneurs in Denmark to examine what motivates them to operate their firms personally as opposed to hiring a manager. We find that while nonpecuniary motives play a role in the founders’ decision to operate their firms personally, opportunity cost of owner-management and relevant prior experience are equally important. Thus, entrepreneurs put significant emphasis on the characteristics that would improve firm performance and their overall wealth. Our findings are similar for entrepreneurs in high-technology and low-technology sectors as well as for founders who hire non-family and family managers. We also observe that when founders do not manage their firms personally, they typically work full-time at another firm or play a non-managing role in their own venture. In our subsequent analysis, we investigate how these two types of non-managing founders differ, providing further insights into their behavioral motives.

Keywords: top manager, founder-manager, entrepreneur, motivation, non-pecuniary benefits

Is it worth trusting your manager?
Kulchina E.

Recent work has emphasized that trust between parties may sustain relational governance, but we need further understanding and empirical evidence of the role of trust in principal-agent relationships. Our paper contributes to the literature by focusing on the asymmetry of trust between an owner and a manager, which may for example arise because owners and managers come from regions with different trust levels. We find that a firm does almost equally well when the owner and the managers come from regions with equal trust (equal trust) and when the owner comes from a region with higher trust (over-trust). However, firm performance is significantly lower when the owner comes from a region with lower trust than that of the manager (under-trust). Moreover, this negative effect is particularly strong when communication between an owner and a manager is more difficult and when the difference in trust is less evident up front.

Keywords: socio-cultural differences, trust, entrepreneurs, top managers, firm performance

  1. Hiring strategies of entrepreneurs (with Ana Venancio)

  2. Comparative advantage of foreign versus domestic CEOs in multinational firms (with Exequiel Hernandez)

  3. Start-up accelerators (with Honggi Lee)

  4. Time-zone effects on multinational firms (with Joanne Oxley)