Eva Lutz

Navigating Institutional Plurality: Organizational Governance in Hybrid Organizations

Hybrid organizations operate in a context of institutional plurality and enact elements of multiple, often conflicting institutional logics. Governance is highly relevant in navigating such an environment. This study examines how hybrid organizations set up their governance structures and practices. Building on survey data from 70 social enterprises, a subset of hybrid organizations, we identify two types of hybrid organization: conforming hybrids rely on the prioritization of a single institutional logic and dissenting hybrids use defiance, selective coupling and innovation as mechanisms to combine and balance the prescriptions of several institutional logics. We illustrate these mechanisms by drawing on the qualitative analysis of selected cases. This study refines current debates on social enterprises as hybrid organizations. Based on our findings, we speculate that some social enterprises might assume hybridity for symbolic reasons while others – genuine hybrids – do so for substantive reasons.

Importance of Spatial Proximity between Venture Capital Investors and Investees in Germany

Based on 1182 dyads of venture capitalists and German portfolio companies involved in a financing round between 2002 and 2007, the study here examines the importance of spatial proximity between investors and investees in a dense economy. Analysis of this data shows that the probability of a financing relationship decreases by 8% if the journey time increases by one standard deviation. For deals involving very small or very large investment sums, and for less experienced venture capitalists and lead investors, spatial proximity is particularly important. The results suggest that even in economies with a dense infrastructure such as Germany spatial proximity between investor and investee impacts the likelihood of an investment.

Investor communication in equity-based crowdfunding: a qualitative-empirical study

Purpose - – This study’s aim is to investigate the role of investor communication in equity-based crowdfunding. The study explores whether and how investor communication can reduce information asymmetries between investors and new ventures in equity-based crowdfunding, thereby facilitating the crowd’s investment decisions. Design/methodology/approach - – This paper follows an exploratory qualitative research approach based on semi-structured interviews with 23 market participants in equity-based crowdfunding: 12 investors, 6 new ventures and 5 third parties (mostly platform operators). After analyzing, coding and categorizing the data, this paper developed a theoretical framework and presented it in a set of six propositions. Findings - – The results indicate that the venture’s overall impression – especially perceived sympathy, openness and trustworthiness – is important to reduce perceived information asymmetries of investors in equity-based crowdfunding. To communicate these soft facts, personal communication seems to be replaced by pseudo-personal communication over the Internet (e.g. videos, investor relations channels and social media). In addition, the communications of third parties (e.g. other crowd investors, professional and experienced investors and other external stakeholders) influence the decision-making process of investors in equity-based crowdfunding. Third-party endorsements reduce the perceived information asymmetries and lower the importance of pseudo-personal communications by the venture. Originality/value - – Prior research shows that investor communication reduces information asymmetries between companies and investors. Currently, little is known about the role of investor communication in equity-based crowdfunding. This study focuses on the role of investor communication to reduce the perceived information asymmetries of investors in equity-based crowdfunding.

Disentangling Gut Feeling: Assessing the Integrity of Social Entrepreneurs

This paper analyzes how social investors evaluate the integrity of social entrepreneurs. Based on an experiment with 40 professionals and 40 students, we investigate how five attributes of the entrepreneur contribute to the assessment of integrity. These attributes are the entrepreneurs personal experience, professional background, voluntary accountability efforts, reputation and awards/fellowships granted to the entrepreneur. We find that social investors focus largely on voluntary accountability efforts of the entrepreneur and the entrepreneurs reputation when judging integrity. For an overall positive judgment of integrity, it was sufficient if either reputation or voluntary accountability efforts of the entrepreneur were high. By comparing professionals with students, we show that experience leads to a simpler decision model focusing on key attributes.

Family firms: should they hire an outside CFO?

Purpose – The purpose of this paper is to examine motives for hiring a non‐family Chief Financial Officer (CFO) in family firms. The authors explore the perceptions of family firm owners towards external managers by analyzing how their goals relate to the employment of a non‐family CFO.Design/methodology/approach – This study is based on a survey of 195 small‐ and medium‐sized privately‐held German family firms. It investigates the relationship between goals of the family and the employment of a non‐family CFO.Findings – Family firm owners decide against an external CFO when their goal of independence and control is high. Furthermore, they do not seem to trust external managers to act in accordance with their goal of enterprise value growth. However, they seem to realize that non‐family CFOs are likely to decrease financial risk through the provision of additional capabilities.Originality/value – The findings are relevant to understand the relationship between external managers and family firm owners. By ...

Family Business and Private Equity: Conflict or Collaboration? The Case of Messer Griesheim

Privately held family businesses are usually characterized by concentrated ownership and the involvement of the family in both the management and control of the company. Theories of family control offer arguments both for governance benefits and costs due to the family involvement. It is therefore not yet fully understood whether buyouts of family firms offer the potential for private equity firms to create value through governance engineering. In addition, conflicts may arise in family-firm buyouts due to the shorter investment horizon of private equity firms compared to families that are interested in keeping long-term control over the company. The aim of this article is to investigate these research questions based on an in-depth analysis of the buyout of the German industrial gas company Messer Griesheim by Allianz Capital Partners and Goldman Sachs in 2001. Under private equity ownership, the company was restructured at a critical inflection point and governance benefits were alleviated through closer monitoring of the management, valuable external board members, and stronger management incentives. The deal navigated the delicate nature of specific aspects of a private equity-backed family firm and finally led to the family regaining control over a portion of its original businesses after the exit of the private equity firms.

The Case for Secondary Buyouts as Exit Channel

Do private equity firms have a clear pecking order when deciding on exit channels for their portfolio companies? Are secondary buyouts - that is, sales to other PE firms - always an exit of last resort? And are there company‐ or market‐related factors that have a clear and predictable influence on decisions to pursue secondary buyouts?. Using a proprietary dataset of over 1,100 leveraged buyouts that exited in North America or Europe between 1995 and 2008, the authors attempt to answer these questions by analyzing the returns associated with public, private, and secondary (or “financial”) exits. Based on their analysis of the realized returns, there is no clear pecking order of exit types. Secondary buyouts deliver rates of return that are the equal of those achieved through public exits. In addition, the authors assess the relationship between the likelihood of choosing a financial exit and certain company‐related as well as market‐related factors. Portfolio companies with greater debt capacity are more likely to be sold in secondary buyouts. Furthermore, increases in both the liquidity of debt markets and the amount of undrawn capital commitments to the private equity industry increase the probability of exit through secondary buyouts.

Loss of Control vs. Risk Reduction –Decision Factors for Hiring Non-Family CFOs in Family Firms

Objectives: We examine decision factors of family firm owners for hiring a non-family Chief Financial Officer (CFO). We explore the perceptions of family firm owners towards external managers by analyzing how their family-specific and company-specific goals relate to the employment of a non-family CFO. Furthermore, we analyze the consequences of hiring a non-family CFO on financial policies such as the use of strategic financial plans and initiatives to improve relationships with external capital providers. Prior work: Prior research has acknowledged that the attitude to external managers is a major concern for family firms because of potential problems due to a separation of ownership and management. However, it was shown that non-family CFOs positively influence the operational performance of privately-held family firms. Little knowledge exists to date to explicitly link the decision to hire an external CFO to the goals of family firm owners. Approach: Our study is based on a survey of 237 small- and medium-sized privately-held German family firms in 2007. We use logistic regression analysis to test our theory-driven hypotheses on the relationship between family-specific as well as company-specific goals of the family and the employment of a non-family CFO. Furthermore, we use OLS and logistic regression analysis to analyze hypotheses on how non-family CFOs influence financial policies. Results: The results suggest that family firm owners are reluctant to hire non-family CFOs because of agency type of problems. They decide against an external CFO when their goal of independence and control is high. Furthermore, they do not seem to trust external managers to act in accordance to their goal of enterprise value growth. However, they seem to realize that non-family CFOs are likely to decrease financial risk through the provision of additional capabilities. Non-family CFOs are shown to influence financial policies and, thereby, to bring in value creating resources. Implications: Family firm owners can use the results to understand the relevant factors they should consider when employing an external CFO. In particular, they should focus on establishing incentive structures for external managers to follow goals of the family. Candidates for non-family CFOs are able to better comprehend the underlying objectives of family firm owners in the hiring decision. Value: Our findings are relevant to further disentangle the relationship between external managers and family firm owners. By applying both the agency theory and the resource based view, we are able to offer explanations for and against the decision to hire non-family CFOs in family firms.

Value creation drivers in a secondary buyout – the acquisition of Brenntag by BC Partners

Purpose - – The purpose of this paper is to identify specific drivers of value creation in secondary buyouts. While this type of private equity deal has risen in importance in recent years, it is not yet well understood. Through an in-depth analysis of the acquisition of Brenntag by BC Partners, we develop propositions on the value creation profile of secondary buyouts. Design/methodology/approach - – We use a single case study design to explore the information-rich context of a secondary buyout. The Brenntag case epitomizes the development of a company from forming part of a large conglomerate to being private-equity owned after the primary and secondary buyout, to its final disposition of public listing. Our analysis is based on ten semi-structured interviews with key protagonists and observers, as well as analysis of primary company data and additional secondary data sources. Findings - – We propose that even if the investment management and monitoring skills of the primary and secondary private equity group are similar, there is still potential to realize operational improvements in a secondary buyout, due to either early exit of the primary private equity group or measures that further enhance management incentives. In addition, the Brenntag case shows that low information asymmetries can lead to higher leverage and that opportunities for multiple expansions are limited in secondary buyouts. Originality/value - – While a secondary buyout has become a common exit route in recent years, we are the first to undertake an in-depth case analysis of a secondary buyout. Our study helps researchers and practitioners enhance their understanding of drivers behind the value creation profile of secondary buyouts.

Venture Capital Firm Returns from Acquisition Exits

In this paper we investigate the returns to venture capital firms from acquisition exits. Starting from M&A literature, we develop three detailed categorizations of acquisitions based on the acquirer’s motive and related agency issues. We use a proprietary data set of 2,356 venture capital-backed transactions from North America and Europe exited between 1982 and 2008 to assess our hypotheses. First, we show that returns from financial buyers are not statistically different from strategic acquirers. In addition, we show that synergy gains and low informational asymmetries in horizontal integrations result in similar venture capital firm returns such as the strategic premium paid by acquirers for diversifications. Both aforementioned acquisition clusters outperform vertical integrations. Further, due to the more severe agency conflict between management and shareholders, public acquirers pay higher prices. Finally, comparing acquisition cluster performance to initial public offerings reveals that based on cash multiples initial public offerings consistently outperform. However, if time is considered (by computing internal rate of returns) horizontal integration acquisitions and those purchased by public acquirers yield comparable venture capital firm returns.