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The Effects of CEO Founder Status and Stock Ownership on Entrepreneurial Orientation in Small Firms

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  • Palash Deb
  • Johan Wiklund

Abstract

This paper studies how governance drives entrepreneurial orientation (EO) in small firms. We argue that founder status and ownership create powerful personal incentives for small firm CEOs to engage in behaviors that influence EO. Integrating stewardship theory and the principal‐principal branch of agency theory, we test our hypotheses on a sample of 339 Swedish firms, and find that CEO founder status is significantly and positively associated with EO, while CEO stock ownership significantly but negatively predicts EO. We additionally test two boundary conditions that show that the founder‐CEO's prior managerial experience in start‐up firms positively moderates the founder‐EO relationship, while contrary to expectations, CEO ownership diversification has no effect on the negative association between ownership and EO. Thus, our study adopts a corporate governance perspective to explain how variations in EO across small firms are driven by the goals and motivations of its leader. Our research also shows that in small, private firms the balance of power is tipped in favor of the CEO rather than the board of directors. Finally, we underline the importance of adopting alternative theoretical lens like stewardship and principal‐principal agency, given that traditional principal‐agent problems are largely mitigated in the small firm context.

Suggested Citation

  • Palash Deb & Johan Wiklund, 2017. "The Effects of CEO Founder Status and Stock Ownership on Entrepreneurial Orientation in Small Firms," Journal of Small Business Management, Taylor & Francis Journals, vol. 55(1), pages 32-55, January.
    • Handle: RePEc:taf:ujbmxx:v:55:y:2017:i:1:p:32-55
    DOI: 10.1111/jsbm.12231
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    Cited by:

    1. Sadiq, Misbah & Yousaf, Sheikh Usman & Anser, Muhammad Khalid & Rashid Khan, Haroon ur & Sriyanto, Sriyanto & Zaman, Khalid & Van Tu, Duong & Anis, Siti Nisrin Mohd, 2023. "The role of debt financing in the relationship between capital structure, firm’s value, and macroeconomic factors: To throw caution to the wind," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 212-223.
    2. Elias Hadjielias & Michael Christofi & Shlomo Tarba, 2022. "Contextualizing small business resilience during the COVID-19 pandemic: evidence from small business owner-managers," Small Business Economics, Springer, vol. 59(4), pages 1351-1380, December.
    3. Yasmine Ouldchikh & Huatao Peng, 2022. "The Impact of Executive Turnover on Entrepreneurial Company's Performance: The Moderating Role CEO's Prior Work Experience in Algeria's Entrepreneurial Business Companies," International Journal of Management Science and Business Administration, Inovatus Services Ltd., vol. 9(1), pages 32-41, November.
    4. Kannan-Narasimhan, Rangapriya (Priya) & Wang, Ruixiang & Zhu, Pengcheng, 2023. "Founder versus agent CEOs: Effects of founder status and power on firm innovation and cost of capital," Journal of Business Research, Elsevier, vol. 167(C).

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