The Influence Of Venture Capital On Start-ups’Managerial Compensation And Recruitment

Good management is important for all enterprises, especially those young and high-speed-growth start-ups which mostly can’t move to maturity for lack of high quality management resources in the initial stage. Therefore, the potential development of start-ups depend on a great extent decreasing agent cost, stimulating incentives of management and recruiting managers who own high-level administrative experience and knowledge or specific skills. Distinctive from other financial intermediaries, venture capital (VC) possessing unique and critical "value-added management" function can meet the particular and over-increasing requirements of start-ups better.Based on the microeconomic perspective of enterprise’s management, this thesis mainly explores VC governance based on "value-added management" function. The author specifies the contents of the "value-added management" function and then decomposes this mentioned function into two parts--motivating internal manager’s instinctive enthusiasm and recruiting high-level external managers to enhance the management capacity and performance. Then, the author offers basic theoretical framework, which is composed of the Principal-Agent theory, the theory of dynamic capabilities and the real option theory, to explain the VC governance based on "value-added management" function. Lastly, this thesis empirically studies about the impaction of VC’s "value-added management" function on start-ups’ top-manager’s incentive mechanism and recruitment of administrative personnel in high position, using the listed companies on the Shenzhen GEM (Growth Enterprise Market) Board and Shenzhen SME (Small and Medium-size Enterprise) Stock Market Board as the sample.By comparing VC-backed start-ups and non VC-backed start-ups, this thesis find out that venture capital indeed play an important role in start-ups’ early-stage management in china. VC-backed start-ups have stronger relation between between firm performance and TMT (top manager team) compensation than non VC-backed start-ups. In short term, the pay-performance sensitivity of VC-backed start-ups’TMT compensation is higher; and in long term, VC-backed start-ups are inclinable to adopt more share options, restricted stocks and stock appreciation rights to make sure managers subordinate the present interests to the long-term interests. Besides, venture capitalists tend to help the start-ups they invest develop professional recruitment system and build new TMT when they find the present TMT is not appropriate in the given stage of the firms’ life expectancy.