A Psychological Process Model for Private Equity. Prof. Dr. Angela Poech NeuroPsychoEconomics October 10, 2008

Transcription

1 A Psychological Process Model for Private Equity Prof. Dr. Angela Poech NeuroPsychoEconomics October 10, 2008

2 Introduction Private Equity is equity financing by institutional investors for not listed companies. Investor and entrepreneur are usually seen as principal and agent (Sahlman 1990). The risk of opportunistic behavior exists on both sides of the dyad (Double Moral Hazard; Casamatta 2003). Conflicts may emerge in every phase of the cooperation (Parhankangas und Landström 2004). page 2

3 Literature Information & Communication Personal Similarity & Personal Fit Justice & Trust Open communication and timely feedback Constructive conflict management Reputational and network effects Social bonding Similarity in culture, demography, goals, and working values Relational fit Shared knowledge Relationalism Procedural justice and fairness Trustworthiness and confidence Commitment Cooperative negotiation behavior Source: u.a. Sapienza & Korsgaard 1996; Busenitz et al. 1997; Sapienza & De Clercq 2000; Higashide & Birley 2002; Shane & Cable 2002; Howorth et al. 2004; Parhankangas & Landström 2004; Busenitz et al. 2004; De Clercq & Fried 2005; De Clercq & Sapienza 2006 page 3

4 Research question and research goal Which psychological factors influence the investor-entrepreneur-relationship? Identification of psychological factors on the basis of relevant theories and development of a psychological process model for private equity page 4

5 Methodology Study 1: Survey Step 1: Open interviews with first five experts Intermediate step: Selection of relevant theories Step 2: Semi-structured interviews with another 16 experts Study 2: Case Study In-depth interviews with buyer and seller of the management-buyin (MBI) Desk research (minutes, contracts, reports, and other documents) page 5

6 Theoretical foundation Theories Deal Origination Evaluation Structuring Investment Exit Cognitive dissonance Self-worth protection Social Identity Cognitive control Procedural justice Trust page 6

7 Hypotheses Study 1 H 1.1: Negative attitudes, mistrust, and stereotypes with regard to private equity provoke selection biases in information processing. H 1.2: Mistrust, anticipation of dissonance, cognitive lost of control, identity threat, violation of procedural justice and self-worth protection build barriers, which (a) hamper the conclusion of a contract and (b) create conflicts during the deal-structuring and post-investment phase. page 7

8 Hypotheses Study 2 H 2.1: The lower the information asymmetries of a MBI and the higher the initial level of trust before starting the negotiation process are, the more successful the negotiations, the transaction process, and the transaction outcome will be. H 2.2: The stronger factors like cooperative orientation, trust, and fairness between buyer and seller of a MBI are, the more open communication and the lower information asymmetries will be. H 2.3: The stronger the transaction process of an MBI is characterized by trust and fairness, the higher the satisfaction of the partners with the outcome of the transaction will be. page 8

9 Psychological process model for private equity Input variables Process variables Output variables Personal and situational influencing factors H 2.1 H 1.1 Information asymmetry H 2.2 Cooperative behavior Self-worth protection Communication Procedural justice H 1.2 Trust H 2.2 H 2.3 Negotiation results Contract Distributional justice Success of the cooperation Satisfaction H 2.1 page 9

10 Influencing factors Personal factors Situational factors Private equity investor Personal reputation Management support Know-how of family business Type of investor Personal values and goals Geographical distance Entrepreneur Personal reputation Ownership Know-how of private equity Management Attitude to private equity Familyness Personal values and goals capital structure Structure of Management (internal, deal external) Type of investment page 10

11 Relevant theories Theories Deal Origination Evaluation Structuring Investment Exit Cognitive dissonance Self-worth protection Social Identity Cognitive control Procedural justice Trust page 11

12 Conclusion The moral control imposed was inexpensive and flexible yet penetrating. (Larson 1992, S. 96) Social Control (Ross 1901) in addition to rational control (monitoring) functions as an effective governance mechanism, which helps to mitigate information asymmetries as well as transaction costs, and reduces the risk of opportunistic behavior. page 12

13 Limitations and outlook Qualitative approach Sample size and structure Ex-post-evaluation of private equity transaction process Positive bias of the MBI case study page 13