Venture Capitalist Directors and Managerial Incentives

87 Pages Posted: 28 Sep 2021 Last revised: 21 May 2024

See all articles by Lubomir P. Litov

Lubomir P. Litov

University of Oklahoma - Michael F. Price College of Business; University of Pennsylvania - Wharton Financial Institutions Center

Xia (Summer) Liu

University of Richmond

William L. Megginson

University of Oklahoma

Romora Edward Sitorus

The University of Oklahoma

Multiple version iconThere are 2 versions of this paper

Date Written: January 22, 2024

Abstract

We examine the effect of board members with venture capital experience (VC directors) on executive incentives at non-venture-backed public firms. VC directors serving on the compensation committee are associated with greater CEO risk-taking incentives (vega) and pay-for-performance sensitivity (delta). These effects are more substantial if VC directors are from highly reputable VC firms. Using availability of direct flights to VC hub cities and annual estimates of VC dry powder per industry as instruments, we show that these results are causal. In addition, VC directors are more focused on growth performance goals in CEO compensation contracts. We also document that prior finding of greater research intensity and innovation when VC directors serve on boards of public firms is partly explained by increased risk-taking incentives of the CEO instilled by such directors. Lastly, we find that having VC directors on nominating and/or governance committees is associated with a higher likelihood of forced CEO turnover.

Keywords: Venture Capital, Executive Compensation, Board of Directors, Performance Goals, Compensation Goals

JEL Classification: G24, G34, J33

Suggested Citation

Litov, Lubomir P. and Liu, Xia and Megginson, William L. and Sitorus, Romora Edward, Venture Capitalist Directors and Managerial Incentives (January 22, 2024). Available at SSRN: https://ssrn.com/abstract=3930648 or http://dx.doi.org/10.2139/ssrn.3930648

Lubomir P. Litov (Contact Author)

University of Oklahoma - Michael F. Price College of Business ( email )

307 West Brooks
Norman, OK 73019-4004
United States

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104
United States

Xia Liu

University of Richmond ( email )

102 UR Drive
Richmond, VA 23173
United States

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

Romora Edward Sitorus

The University of Oklahoma ( email )

Price College of Business
307 West Brooks
Norman, OK 73019
United States

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