Academic journal article Asian Social Science

Managerial Factors and Management Conflict in Venture Capital Financing in Malaysia

Academic journal article Asian Social Science

Managerial Factors and Management Conflict in Venture Capital Financing in Malaysia

Article excerpt

Abstract

The warm venture cooperation built between venture capitalists and entrepreneurs may still be interrupted by the management's conflicts occurred due to various managerial factors. As a result, this study investigates the management conflict in venture capital investments. A cross-sectional study of questionnaire survey research design was conducted in this respect. Questionnaire data was generated from 35 Malaysian venture capital companies located in Kuala Lumpur and Selangor. The questionnaires were distributed through the mailing procedure. Overall, the findings indicate that the managerial factors significantly influence the management conflict. Further results show that managerial factors which consist of Deal Origination and Screening (DOS), Evaluating Venture Proposal (EVP), Contracting and Deal Structuring (CDS), Monitoring and Post Investment Activities (MPI) and Risk Management (RM) significantly influence the formation of management conflict in venture cooperation. Based on the findings, it is inferred that managerial factors does influence the occurrence of management conflict in venture cooperation. Thus, the study recommends that Malaysian venture capitalists give consideration to the managerial factors in reducing or curbing the possibility of conflict to occur.

Keywords: venture capital, management conflict, venture cooperation, entrepreneurs, venture capitalist

1. Introduction

The ultimate goal in any venture cooperation is to create a successful venture business. The likelihood of a venture cooperation to success is also depends on the venture capitalists' ability to establish cordial relationships with the entrepreneurs (Lim et al., 2013). The challenges and the difficulties faced by venture capitalists in managing venture business have made it mandatory for them to develop good and strong relationships with each other to achieve mutual goals (Gimmon et al., 2011; Jääskeläinen, 2011; Sohaimi, 2004). However, the warm venture cooperation built between venture capitalists and entrepreneurs may still be interrupted by management conflict as highlighted by Yitshaki (2008) and Sohaimi (2004). As management conflict may negatively affect the performance of the venture businesses (Vanacker et al., 2013), it may also become one of the major barriers that prevent both venture capitalists and entrepreneurs from creating successful venture business.

In the absence of perfect foresight, the venture capitalists face the prospect of incomplete compliance by the investee firms (Gimmon et al., 2011; Wendels et al., 2011). In other words, the venture capitalists can only judge the effectiveness within which the investee firms complete their assigned tasks in an indirect way. Typically, the investee firms are not fully supervised and they have a measure of independence which tempts them to exploit the trust, i.e. by avoiding the risk and to shirk on effort. In this view, the venture capitalists may be worried about the possible action of the investee firms, and thus may work toward precaution strategies and direct management involvement (Park & Steensma, 2012; Yitshaki, 2008). Moreover, this may lead toward positive instead of artificial business scenario. In addition, where informational asymmetries are significant among them, the investee firms are tempted to defect from the financial contracts because it is quite easy to manipulate strategic information to the venture capitalists about their venture businesses to their short-term ends (Minai et al., 2011; Miller & Wesley, 2010).

It is argued here that the root for any management conflict in any venture capital cooperation is presumed to come from the investee firms themselves rather than from the venture capitalists. The conflict in venture cooperation exists largely during the post investment stage mainly due to the failure of the investee firms in fulfilling their obligations (Andrieu, 2013; Metrick & Yasuda, 2010) in particular, by having full information disclosure, even though the requirement for this is clearly specified in the contractual agreement. …

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