Throwing good money after bad? Political and institutional influences on sequential decision making in the venture capital industry

• 成果类型: Review
• 署名作者: Guler, Isin
• 署名单位: University of North Carolina; University of North Carolina Chapel Hill
• 刊物名称: ADMINISTRATIVE SCIENCE QUARTERLY
• ISSN/ISSBN: 0001-8392
• DOI: 10.2189/asqu.52.2.248
• 发表日期: 2007
• 页码: 248-285
• 关键词: real options; ESCALATING COMMITMENT; sunk costs; ORGANIZATIONAL PRACTICES; DE-ESCALATION; CHOSEN COURSE; MARKET; performance; INVESTMENT; networks

摘要

This study focuses on the political and institutional influences that lead organizational decision makers to avoid terminating unsuccessful investments, even when there is competition and they have the experience and incentives to maximize profits. I examine multilevel influences on sequential investment decisions in the U. S. venture capital industry through a qualitative study of the investment process and a quantitative examination of venture capital investments between 1989 and 2004. Results show that venture capital firms become less likely to terminate investments as they participate in more rounds of financing, despite evidence that expected returns are declining over rounds. Intraorganizational politics, as well as coercive and normative pressures from co-investors and limited partners, may influence the decisions to continue or terminate investments, regardless of the expected returns. The findings suggest that organizational safeguards designed to mitigate individual biases may give rise to political and institutional influences, which may in turn undermine the effectiveness of the decision process.