Responses to psychological contract violations in the venture capitalist-entrepreneur relationship: An exploratory study

Annaleena Parhankangas and Hans Landström

Venture Capital, 2004, vol. 6, issue 4, 217-242

Abstract: The purpose of this paper is to describe venture capitalists' responses to psychological contract violations in their relationship to entrepreneurs. In particular, the authors seek to establish a link between the characteristics of a psychological contract violation and the venture capitalist's attitudes and behaviour. They are concerned with four situations conducive to psychological contract violations in a venture capitalist-entrepreneur relationship: (1) a disagreement over the goals or strategies of a portfolio company; (2) incompetence; (3) shirking; and (4) opportunistic behaviour of the entrepreneur. The results show that these four examples of psychological contract violations are an integral part of the venture capitalist-entrepreneur interaction. Faced with these challenges, venture capitalists prefer active behaviours to passive approaches. It was also found that venture capitalists' reactions to unmet expectations are influenced by the degree to which a psychological contract violation is perceived to be voluntary and harmful for the portfolio company. In a similar vein, venture capitalists' attitudes and behaviour are shaped by the extent to which it is possible to improve the impaired relationship.

Date: 2004
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DOI: 10.1080/1369106042000258526

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