The Boundaries and Limitations of Agency Theory and Stewardship Theory in the Venture Capitalist/Entrepreneur Relationship

Jonathan D. Arthurs · Lowell W. Busenitz

373 citations0/0 files storedEntrepreneurship Theory and Practice

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Private Equity and Venture Capital Corporate Finance and Governance Entrepreneurship Studies and Influences

Abstract

The dynamic ownership arrangements surrounding the venture capitalist–entrepreneur (VC–E) relationship inherent in new ventures make the examination of principals’ or venture capitalists’ (VCs) and agents’ (entrepreneurs) governance arrangements interesting to explore. This article examines the limitations of agency theory and then stewardship theory in explaining the behaviors of individuals in the VC–E relationship. Our analysis points out the potential problems inherent in each theory's explanatory ability as it relates to the VC–E relationship. Lastly, theoretical gaps in the VC–E relationship are discussed along with suggestions for new theory surrounding this important and intriguing relationship.

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References

1976Theory of the firm: Managerial behavior, agency costs and ownership structure 1979Prospect Theory: An Analysis of Decision under Risk 1991Firm Resources and Sustained Competitive Advantage 2004Firm resources and sustained competitive advantage 1988Prospect theory: An analysis of decision under risk 1987The Economic Institutions of Capitalism 1989Agency Theory: An Assessment and Review 2000The Promise of Entrepreneurship as a Field of Research

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