Responses to Psychological Contract Violations in the Venture Capitalist-Entrepreneur Relationship: An Exploratory Study

15 Pages Posted: 24 Mar 2011  

Annaleena Parhankangas

University of Illinois at Chicago

Hans Landström

Lund University - Lund Institute of Economic Research

Date Written: 2003

Abstract

The purpose of our paper is to describe venture capitalists’ responses to psychological contract violations in their relationship with entrepreneurs. In addition, we seek to establish a link between the characteristics of a psychological contract violation and the venture capitalist’s behavior. We are concerned with three forms of psychological contract violations: (i) a disagreement over the goals or strategies of a portfolio company, (ii) incompetence of the entrepreneur, and (iii) shirking and opportunistic behavior of the entrepreneur. Our results show that venture capitalists prefer active behaviors to passive approaches. Also, voluntariness of the psychological contract violation, possibilities to improve the impaired relationship, and the performance implications for the portfolio company play a key role in determining the venture capitalist’s reaction.

Keywords: Entrepreneurship

JEL Classification: M13

Suggested Citation

Parhankangas, Annaleena and Landström, Hans, Responses to Psychological Contract Violations in the Venture Capitalist-Entrepreneur Relationship: An Exploratory Study (2003). Babson College, Babson Kauffman Entrepreneurship Research Conference (BKERC), 2002-2006. Available at SSRN: https://ssrn.com/abstract=1783700

Annaleena Parhankangas (Contact Author)

University of Illinois at Chicago ( email )

1200 W Harrison St
Chicago, IL 60607
United States

Hans Landström

Lund University - Lund Institute of Economic Research

P O Box 7080
SE-220 07 LUND
Sweden

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