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Corporate governance is a recent concept that encompasses the costs caused by managerial misbehavior. It is concerned with how organizations in general, and corporations in particular, produce value and how that value is distributed among the members of the corporation, its stakeholders. The interrelation of value production and value distribution links the ubiquitous technological aspect (the production of value) with the moral and ethical dimension (the distribution of value). Corporate governance is concerned with this link in general, but more specifically with the moral and ethical dimensions of distributing the generated value among the stakeholders. Value in firms is created by firm-specific investments, and the motivation and coordination of value-enhancing activities and investment is protected by the power concentrated at the pyramidal top of the organization. In modern companies, it is the CEO and the top management who decide how to create value and how to distribute it among the relevant stakeholders. Due to asymmetric information and the imperfect nature of markets and contracts, adverse selection and moral hazard problems occur, where delegated (selected) managers could act in their own interest at the costs of other relevant stakeholders. Corporate governance can be understood as a two-tailed concept. The first aspect is about identifying the (most) relevant stakeholder(s), separating theory and practice into two different and conflicting streams: the stakeholder value approach and the shareholder value approach. The second aspect of the concept is about providing and analyzing different mechanisms, reducing the costs induced by moral hazard and adverse selection effects, and balancing out the motivation and coordination problems of the relevant stakeholders. Corporate governance is an interdisciplinary concept encompassing academic fields such as finance, economics, accounting, law, taxation, and psychology, among others. As countries differ according to their institutions (i.e., legal and political systems, norms, and rules), firms differ according to their size, age, dominant shareholders, or industries. Thus, concepts in corporate governance differ along these dimensions as well. And while the underlying characteristics vary in time, continuously or as a result of an exogenous shock, concepts in corporate governance are dynamic and static, offering a challenging field of interest for academics, policymakers, and firm managers.

Article

Vincenzo Butticè and Massimo G. Colombo

Fundraising has proved difficult for many entrepreneurs and ventures in the early stages of their businesses because of significant information asymmetries with investors and a lack of collateral. In an attempt to overcome such difficulties, since the early 2010s, some entrepreneurs have come to rely on the Internet in order to directly seek funding from the general public, or the “crowd.” The practice of collecting small amounts of capital from the “crowd” of Internet users is called crowdfunding. Crowdfunding research is a relative newcomer to the discipline of entrepreneurial finance. However, the availability of easy-to-access data, the diffusion of this funding channel among entrepreneurs, and increasing policy attention have made crowdfunding one of the most investigated areas of research in entrepreneurial finance. The literature has discussed crowdfunding as more than a simple mean of financing. Crowdfunding also allows entrepreneurs to develop a virtual community of followers, which provides a valuable source of information with which to test and improve early versions of innovative products. Moreover, crowdfunding represents a method of gaining information about market response to a given product and the size of demand for that product, and is a powerful marketing instrument that can be used to increase brand awareness and to promote the arts, social initiatives, and financial inclusion. However, crowdfunding also entails a number of pitfalls for entrepreneurs. In order to collect financial resources from the crowd, entrepreneurs are required to share sensitive information online. This includes information about the entrepreneurial initiative, the team, and the business model they are using. The provision of this information may facilitate product counterfeiting, or the appropriation of the value of the idea by other firms or entrepreneurs. Moreover, crowdfunding entails the risk of social stigma if the funding campaign results in a failure, because information about the performance of the crowdfunding campaign usually remains accessible online. Finally, crowdfunding entails additional challenges related to the management of the crowd of backers after the campaign, since several backers will be active providers of feedback and will interact with the entrepreneurs through direct communication. Despite these disadvantages crowdfunding has become a widely used funding source for entrepreneurs looking for financing for sustainable projects, creative initiatives, and innovative ideas.

Article

Sophie Manigart, Miguel Meuleman, and Tom Beernaert

Private equity (PE) investors enhance the governance of portfolio companies by installing high-powered boards, structuring the senior management team, installing reward and performance management systems, and advising the portfolio company. The aim is to reduce agency risks and to increase shareholder value. A growing body of literature investigates the real effects of PE buyouts on their portfolio companies. Empirical evidence suggest that PE buyouts do not consider efficiency improvements as their main value-creating strategy, but PE enhances growth rather than efficiency. Researchers’ understanding of PE’s entrepreneurial growth approach to increase shareholder value is limited to date, although it is known that PE portfolio companies are active innovators and that PE portfolio companies extensively engage in acquisitive growth. Financial performance of PE investors can also be driven by transferring value from other stakeholders to the portfolio company after buyout. Does PE buyout’s shareholder value creation come at the expense of other stakeholders, such as employees or customers, or do they also benefit? PE’s impact on employment and wages in portfolio companies has received considerable attention. The effect depends on the institutional setting and macroeconomic conditions and differs across PE groups and by type of buyout. PE buyouts do improve employees’ safety, well-being, and human capital. Research on the impact of PE on stakeholders other than employees is limited. Industry-specific studies uncovered fine-grained actions and mainly negative effects on various stakeholders beyond shareholders and employees. This highlights the tension between enhancing shareholder value at the expense of stakeholder value. Given the continuous development of practices in the PE industry, the governance roles of PE will remain a fertile ground for academic research.