Journal of Innovation & Knowledge 7 (2022) 100274

Journal of Innovation
& Knowledge
ht t p s: // w w w . j our na ls .e l se vi e r .c om /j ou r na l -o f - in no va t i on -a n d- kn owl e dg e

Multiple principal conflicts and technological innovation performances of

international new ventures: Moderating role of founder’s experiences
Taewoo Roha, Byung Il Parkb, Shufeng (Simon) Xiaoc,*
a
Global Business School, Soonchunhyang University, Soonchunhyang-ro 22, Sinchang-myeon, Asan-si, Chungchungnam-do 31538, South Korea
b
College of Business, Hankuk University of Foreign Studies, 270, Imun-dong, Dongdaemun-gu, Seoul 130-791, South Korea
c
Division of Business Administration, Sookmyung Women’s University, 100, Cheongpa-ro 47-gil, Yongsan-gu, Seoul 04310, South Korea

A R T I C L E I N F O A B S T R A C T

Article History: To examine technological innovation performances of international new ventures (INVs), this study investi-
Received 14 May 2022 gates how and under what conditions insider and institutional ownership might matter. Building on the per-
Accepted 18 September 2022 spective of multiple principal conflicts, we theoretically and empirically address this central question by
Available online 25 September 2022
developing an understanding of how insider and institutional ownership could improve and hinder techno-
logical innovation performances of INVs. We also examine the influence of INV founding entrepreneurs’
Keywords:
experience to determine whether their prior professional and startup-founding experience could constrain
International new ventures
or enhance innovation performance implications of insider and institutional ownership. Empirical results
Insider owners
Institutional investors
obtained from a sample of 219 Korean INVs demonstrate that insider ownership and institutional ownership
Founder experience can differentially affect INVs’ technological innovation performances by providing positive and negative
Technological innovation performance innovation contributions, respectively. We also found that founders’ prior experience was an important
aspect of enhancing the technological innovation of INVs. Specifically, prior professional experience and
startup-founding experience of INVs’ founders were found to negatively and positively affect the contribu-
tion of institutional ownership to technological innovation performances of INVs, respectively. By contrast,
we discovered that the contribution of INVs’ insider ownership to technological innovation performances of
INVs had no relationship with their founders’ experience. We ultimately draw meaningful contributions to
the literature by examining roles of corporate governance structure of INVs and their founders’ experience in
explaining innovation performances of INVs.
© 2022 The Authors. Published by Elsevier España, S.L.U. on behalf of Journal of Innovation & Knowledge. This
is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/)

Introduction 2018). In this regard, international new ventures (INVs)—i.e., SMEs

that have entered the international market early in their existence—
Although engaging in international trade has traditionally have emerged as a noteworthy topic in the IB research realm. Despite
required substantial resources, advances in technology and commu- contributions made by previous literature, there has been a dearth of
nications have made it much easier for young and small businesses to studies examining multiple principal issues in INVs and how they
enter overseas markets (Riding et al., 2012). The emergence of small affect technological innovation performances to this point (Baum et
and medium-sized enterprises (SMEs) with significant network capa- al., 2011; Lahr & Mina, 2016; Schwens & Kabst, 2011). Multiple prin-
bilities, learning capabilities, and entrepreneurial capabilities in cipal problems can be defined as “multiple collective action prob-
international markets has attracted scholarly attention of interna- lems” that firms encounter when they must balance interests of
tional business (IB) researchers (Cavusgil & Knight, 2015; Gerschew- multiple shareholders under corporate governance (Voorn et al.,
ski et al., 2018; Zander et al., 2015). Those entrepreneurial 2019, p. 671). Arthurs et al. (2008) have proposed insiders’ preference
enterprises are typically SMEs with an innovative mindset and a for long-term investment and institutional investors’ underwriting
global awareness, implying that they not only consider their domes- by considering the purpose of various investment periods between
tic market as a product outlet, but also consider the entire globe to be principals, leading to the occurrence of multiple principal problems
an immense store with vast sales possibilities (Mudambi & Zahra, in the IPO process of venture companies. Each principal’s interest in
technological innovation differs. While insider owners of ventures
are interested in protecting and advancing technological innovations
* Corresponding author. for the benefit of themselves and long-term shareholders,
E-mail address: bizsxiao@sookmyung.ac.kr (S. Xiao).

https://doi.org/10.1016/j.jik.2022.100274
2444-569X/© 2022 The Authors. Published by Elsevier España, S.L.U. on behalf of Journal of Innovation & Knowledge. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/)
T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

institutional investors are more interested in leveraging and mone- ventures could influence firms’ technological innovation depending
tizing present values of those technologies. on output additionality through subcontracting. Lee et al. (2022)
This study examines INVs setting wherein multiple principal have verified that VCs have positive impact when information asym-
problems and technological innovation issues for long-term perfor- metry between investors and ventures is reduced and that indepen-
mance are salient. Traditional agency theory examines conflicts of dent VCs—rather than governmental VCs—can improve corporate
interest between a principal and agents. Considering multiple princi- innovation. Using ICT startups as a sample, Chung et al. (2022) have
pal viewpoints is an approach that can be used to address conflicts of examined the ownership structure of ventures as a critical factor in
interest among multiple principals when at least one of them has a innovation and performance for technology-based startups that are
disparate interest in the firm’s long-term performance, resulting in a facing difficulty accumulating the necessary capital. As such, several
collective action dilemma (Arthurs et al., 2008; Ward & Filatotchev, issues concerning Korean ventures are being discussed. Among them,
2010). Under these circumstances, there is a risk of discordant behav- ownership—which refers to the decision-making group that could
ior among multiple principal groups and existence of a situation affect technological innovation—has emerged as a central discourse.
where each principal might be faced with contradictory decisions The theoretical lens that focuses on multiple principal problems
about whose interests should be reflected in long-term decision mak- through this research setting enriches our interpretation of founders’
ing (Voorn et al., 2019; Young et al., 2008). Therefore, applying multi- human capital as a moderator of issues arising in Korean INVs and
ple principal perspectives into INVs settings can extend insight and information asymmetry between principals.
additionality into issues that might arise between insider and institu- By examining the INVs setting through the lens of multiple princi-
tional owners (Florin, 2005; Hsu, 2007; Popov & Roosenboom, 2012). pal problems, we delineate how a founder’s human capital in terms
Mutual consent within INVs regarding technological innovation as of learning (i.e., professional and startup experience) influences tech-
long-term corporate performance can only be accomplished when nological innovation performance in this work. Founders of INVs
information asymmetry between insider owners (i.e., the founders, who rely excessively on their past professional experience may have
the founders’ family members and relatives, and employees) and limited market dynamism. Thus, they might not accept feedback in a
institutional investors (i.e., venture capitals and angel investors) is new environment (Carr et al., 2010; Nadkarni et al., 2011). Given the
minimized (Amit et al., 1990; Gompers, 1995; Shane & Cable, 2002). importance of flexibility for the survival of INVs in a dynamic and
However, insider owners and institutional investors are inevitably complex environment, myopic learning based on previous experien-
confronted by multiple principal issues due to incompatibility of their ces might be detrimental to technological innovation performance
respective stances regarding long-term performance of INVs (Arthurs (Zettinig & Benson-Rea, 2008; Zuzul & Tripsas, 2020). Meanwhile,
et al., 2008; Choi et al., 2012). Specifically, insider owners of INVs founders of INVs with startup familiarity might be well-suited to
with rapid knowledge accumulation and ability to adapt are often weathering uncertainties by reducing information asymmetry
willing to make long-term investments in technological innovation through the use of entrepreneurial orientation, efficient investment
to overcome liabilities of newness and smallness that inevitably arise management, and proactiveness at the investment stage (Dencker &
from resource deficiencies relative to indigenous incumbents in the Gruber, 2015; Frese et al., 2020; Hsu, 2007), thus granting persuasive
international market (Buccieri et al., 2021; Djupdal & Westhead, awareness for insiders and institutional investors regarding long-
2015; Lundan & Li, 2019; Mathews & Zander, 2007; Prashantham & term investments.
Floyd, 2012; Sapienza et al., 2006). Meanwhile, although institutional Taken together, results of this study extend multiple principal
investors—including venture capitalists (VCs)—can help INVs over- relationships to INVs by identifying potentially competing motiva-
come certain flaws in market competitiveness and ensure organiza- tions of two actors (i.e., those of insider owners and institutional
tional legitimacy (Fisher et al., 2017; Hellmann & Puri, 2000), they investors), thus contributing to the literature by examining how mul-
also desire short-term returns to guarantee their investor profits tiple principal problems affect technological innovation performance
(Arthurs et al., 2008; Nofsinger & Wang, 2011). Resulting multiple for long-term growth and how such problems can be addressed. Our
principal issues caused by such asymmetric information might lead contributions are primarily three-fold. First, through multiple princi-
to serious conflicts regarding decision making for long-term invest- pal perspectives in INVs, we discern that insider owners who monitor
ments (Young et al., 2008). Nonetheless, there have been few studies other principals and institutional investors representing agents pro-
examining effects of multiple principals on INVs’ investment in tech- viding capital could disagree over long-term decisions about techno-
nological innovation. logical investment. Although multiple principal problems concerning
To fill in the research gap described above, the multiple principal innovative performance do not arise in cases where the insight or dis-
problem has emerged as a theoretical lens for understanding the cernment of institutional investors can be helpful for INVs in the
asymmetric information conflict by which insider and institutional short term, there might still be an incongruity between strategic ori-
ownership can coexist to achieve long-term mutual goals in INVs. entations of institutional and insider owners in the long term due to
Compared to institutional investors, insiders have a more in-depth their different investment purposes. Our second contribution to mul-
understanding of information and knowledge about developing new tiple principal perspectives is our finding that, given principals’
technologies by embedding extant technologies that an INV has accu- opposing motives for investing in technological innovations, found-
mulated (Deligianni et al., 2020). By contrast, institutional investors ers having more professional experience can exacerbate the informa-
have a lot of experience in quickly maximizing the value of an INV’s tion asymmetry problem due to their myopic learning, resulting in
latest technology through exit or IPO (initial public offering) (Callen harmful long-term investments. Our third contribution is that multi-
& Fang, 2013). However, there has been a lack of research into how ple principal problems for technological innovation investment are
the information asymmetry problem caused by each principal’s more likely to be addressed as the founder has increasing previous
knowledge differs and affects long-term technological innovation startup experience. To sum up, we contribute to existing studies by
performance of an INV. In this regard, the background of our study showing that INVs with experienced founders are successful in com-
consists of multiple principal problems that arise between owners in petition by reducing conflicts of interest between principals. Such
terms of technological innovation performances of Korean INVs. INVs organizational learning can positively impact INVs’ long-term goals
have grown tremendously in Korea to the point of becoming a central and innovative performances.
pillar of economic development. Their technological innovation has The rest of this study is organized as follows. In the theory and
contributed substantially to various sectors. Accordingly, there have hypotheses section, multiple principal problems and learning theory
recently been increasing empirical studies using Korean ventures as occurring in the context of INVs are explained and each hypothesis is
samples. For example, Kim (2020) has found that R&D subsidies for presented. In the methods section, background explanations are
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T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

presented for Korean INVs (our sample) and measurement of explan- than other INVs which do not seek knowledge development. Thus,
atory variables is demonstrated. In the section of analyses and empir- the former are better positioned to adequately handle uncertainties
ical results, verification results and their significance are and surmount any risks encountered in alien environments (Sapienza
demonstrated. Lastly, the discussion and conclusion section reports et al., 2006). In other words, learning theory posits that human beings
key findings and presents discussions of unsupported hypotheses, can augment their creative capacity by having greater experiences
theoretical and managerial implications, and limitations and direc- and know-how obtained from such experiences. It can be expected
tions for future research. that INVs armed with such top managements possessing various
prior experiences will survive in the competitive international battle-
Theory and hypotheses field better than those suffering from the lack of such a capability.
Zhang (2011) has verified that the founder’s start-up experience
Multiple principals and learning theory in the context of INVs forms learning by social connection and attracts attention from ven-
ture capitalists. With evidence from Japanese startups, Kato et al.
This paper includes INVs in which both insider owners (e.g., (2015) have validated that founders’ experiential capital matters for
founder) and institutional investors (e.g., venture capitalists) coexist innovation. Dencker & Gruber (2015) have explored how types of
and cooperate to achieve mutual interests. In this situation, both enti- experiences a founder exploits influence a venture’s performance.
ties possess asymmetric information regarding venture operations Gifford et al. (2021) have found that a founder’s multifaceted experi-
such that the insider owner is more aware of what the venture is ence can increase his/her understanding of innovation and make a
doing (Organisation for Economic Co-operation and Development, substantial contribution to a venture’s survival. Taken together, these
2000). Under these circumstances, institutional investors will moni- findings indicate that learning may influence INVs’ financial, objec-
tor behaviors, management styles, and philosophies of insider own- tive (i.e., survival and stability), and innovative performance, even in
ers. This relationship is often referred to as so-called the multiple uncertain atmospheres, which are common in international markets.
principal problem or multiple accountability problem (Voorn et al., In the next section, we will develop and introduce sets of hypotheses
2019). The insider owner commonly acts to meet expectations of all on how insider and institutional ownership influence technological
stakeholders and shareholders rather than any single one. Once mul- innovation performances of INVs and how the INV founding entre-
tiple principals are brought in, governance becomes increasingly preneurs’ prior professional and startup-founding experience could
complicated, leading to serious multiple principal problems (Young moderate innovation performance implications of insider and institu-
et al., 2008). Multiple principal problems are particularly likely to tional ownership. Fig. 1 summarizes our conceptual framework.
occur when an institutional investor pursues enhanced short-term
performance to swiftly retrieve its investment. In other words, since Multiple principals of INVs and technological innovation performance
principals’ interests are often not identical, a conflict between pursu-
ing one’s own individual interests and mutual interests is common In this study, INVs are defined as companies that generate more
(Young et al., 2008). As a result, although both insider owner and than 20% of their total sales overseas during the three years after
institutional investors generally aim to guide INVs in the right direc- their founding (Zhou et al., 2010) with attempt to achieve radical
tion, it becomes increasingly complex and difficult to establish gover- globalization based on an innovative nature and global mindset
nance that aligns interests of one given principal with those of other (Khan & Lew, 2018). Compared to multinational businesses and
principals. However, the status quo can subside in the presence of indigenous firms, international start-ups often have lower levels of
reciprocal trust accumulated by them. organizational legitimacy, vertical integration, and small scale
According to explanations given by learning theory (Argote, 2011; (Shrader et al., 2000). Since INVs aim to globalize swiftly despite
Dixon, 2017; Senge, 1990), one example situation that can lead to being start-ups, they have a relatively high likelihood of failure in the
shared reliability is when institutional investors trust the manage- process of internationalization. Since enterprises that embrace a
ment and business capabilities of the insider owner. Such manage- more sequential entry mode have a 26% internationalization failure
ment and business capabilities can possibly be obtained by attaining rate, the internationalization failure rate of INVs cannot be ignored
adequate knowledge and relevant experiences (Park, 2010, 2011) (Mudambi & Zahra, 2018). As a result, start-up founders seek to
that we can nutshell it simply as ‘learning.’ As illustrated by Levitt & increase the feasibility of their business plans by augmenting their
March (1988, p. 320), learning enables firms to encode “inferences limited business experience and establishing organizational legiti-
from history into routines that guide behavior.” This definition is per- macy with the help of VCs and institutional investors who can coach
haps particularly true for INVs in that entry into foreign markets typi- and fund startups to achieve successful exits (i.e., IPO or acquisition).
cally denotes challenges for small organizations and venture firms However, VCs and institutional investors operate from a self-
because they suffer from a lack of internal resources relatively more interest perspective (Fisher et al., 2017; Hellmann & Puri, 2000). Per-
than conglomerates. That is, entry into foreign markets (i.e., interna- sonal capitalism is the primary economic perspective of VCs, which is
tionalization) causes INVs to face unfamiliarity in the institutional dominated by professional logic (Fisher et al., 2017). VCs gain credi-
environment residing in host countries and overcome liabilities of bility through their investing track record. They exert authority
foreignness (Gerschewski et al., 2018; Park et al., 2022). Gerschewski through equity percentages and a straightforward hierarchy. That is,
et al. (2018) have pointed out that prior learning through relevant both VCs and institutional investors share a common investment pur-
business and founding experiences can function as valuable knowl- pose of creating economic profits for themselves and their fund
edge to trigger the development of new products and reformation of investors. Meanwhile, insiders—including the start-up founder—aim
R&D, thus facilitating internationalization activities and promoting to create a sustainable enterprise while pursuing economic profit.
performance (Yli-Renko et al., 2002). Briefly, learning can ease the Therefore, it takes a long time to acquire managerial and leadership
development and evolution of capabilities in INVs (Zahra, 2005). skills and develop the organization (Picken, 2017). Accordingly, con-
The reason why we choose to shed light on ‘learning’ in the con- flicts of interest among principals of INVs might lead to multiple prin-
text of INVs is that it is a critical conduit whereby INVs can create and cipal problems.
develop their competitiveness (Schwens & Kabst, 2011). In the case To grow and thrive in international markets, INVs must cultivate
where the internal owner (CEOs and/or founder) has various types of innovative competencies to deal with their liabilities of smallness,
experience, INVs do not shirk continuous learning. Instead, they seek newness, and foreignness (Zahra, 2005). To that end, INVs mainly
knowledge development. Logically, those INVs should be in a better employ differentiated or niche strategies to provide unique products
position to pursue opportunities that are available in global markets and services to local customers. As technology continues to develop,
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T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

Fig. 1. Conceptual framework.

INVs also require persistent technological development to secure a growth of INVs. The present work proposes that insider ownership
sustainable competitive advantage. However, since radical innova- can positively affect technological innovation performances of INVs
tion is quite resource-consuming, firms including INVs must make with the following hypothesis:
steady efforts to pursue innovation to achieve continuous growth Hypothesis 1 (H1): Insider ownership has a positive relationship
(Buccieri et al., 2020; Shahzad et al., 2022). The proclivity of INVs for with technological innovation performances of INVs.
enhancing technologies to new markets to expand revenue potential Although previous studies have shown that institutional investors
is likely to benefit from insider owners’ innovative motivation. There- generally can improve firm innovation performance by providing
fore, insider owners can strive for continuous technological innova- business portfolio consultations (Popov & Roosenboom, 2012), capital
tion to survive and eventually develop into long-term companies. investment (Hall, 2002), and proactive monitoring (Rong et al., 2017),
Through interviews with representatives from eight Pakistani INVs, caution is needed before directly applying such reasoning to INVs.
Gerschewski et al. (2018) have found that founders’ entrepreneurial Since R&D projects of INVs—relative to those of normal corporations
orientations and continual innovation in products and work environ- —involve higher uncertainty and require increased consideration of
ments are critical for INVs to survive the 2000 dot-com crisis and the potential risks and even international investment stages, concerns
2008 global financial crisis. about technology investment failure may hinder founders’ willing-
Since INVs must be able to adapt to changes in the business envi- ness to invest in R&D. Thus, to achieve high R&D performance,
ronment after successfully introducing new products into overseas insiders in INVs are likely to tolerate some extent of innovation fail-
markets, insider owners who fail to quickly recognize technological ure and pursue long-term success (Aghion et al., 2013; Manso, 2011).
needs of foreign markets risk bad performance. Ramos-Hidalgo et al. However, institutional investors are generally more interested in
(2022) have examined the effect of innovation on sustainable growth short-term returns than in long-term success of investee companies
of 243 Spanish INVs and found that R&D investments play an indis- (Callen & Fang, 2013). VCs may put pressure on managers, including
pensable role in their competitiveness and technological progress founders, to achieve high short-term performance, thus causing
(Booltink & Saka-Helmhout, 2018). For example, innovative patents them to avoid risky long-term projects (Stein, 1988). When facing
that protect core competence and maintain sustainable competitive- pressure from incentives and job security, managers are pressured to
ness were found to positively affect international performances of give up R&D projects and instead solely aim to improve short-term
INVs. In a study considering American-born-global companies, Knight performance (Bushee, 1998, 2001a). For example, Lahr & Mina (2016)
& Cavusgil (2004) have investigated impacts of innovative culture, have investigated the effect of VCs’ investments on the patents of
knowledge, and capacities on international and entrepreneurial firms investee companies in US and UK companies and found insignificant
and discovered that the ability to adapt innovation resources is criti- or rather opposite impacts.
cal to INVs’ long-term success. This short-term performance orientation of institutional investors
Prior research has also shown that insider owners (i.e., founders, might be more pronounced for INVs in emerging countries. Rong et
their families, and employees) can positively affect technological per- al. (2017) have assumed the existence of a positive relationship
formance by reducing agency costs (Choi et al., 2012). The same argu- between institutional ownership and corporate innovation in
ment can be extended to performances of INVs in terms of advanced economies. They found that the relationship was different
technological innovation. Founders of INVs are incentivized to alter in emerging countries when activity and intensity of institutional
their portfolios based on forecasts of future success because they are investors were low. Moreover, while mutual funds had a positive
likely to have exclusive information about a firm’s technological tra- effect on the innovation performance of a company, domestic institu-
jectory (Fuerst & Zettinig, 2015). Founders’ families in INVs are also tional investors had no significant effect. Chinese VCs, which are less
likely to value long-term goals achieved through the firm’s solidity interested in long-term development of venture firms, are more
over short-term financial gains. Results of a study linking employee focused on realizing profits faster and therefore wary of risky and
earnings and wealth to company performance have shown that uncertain projects (White et al., 2005). These findings imply that
employees in INVs exhibit boosted productivity and performance by institutional investors acting as speculators with little interest in an
reducing labor-management friction and increasing individual com- INV’s long-term profitability might intensify managerial short-term-
mitment, cooperation, and information sharing (Martin et al., 2020). ism. Venture financing is linked to a tendency to considerably reduce
Therefore, technological innovation is a crucial aspect of long-term the time to bring a product to market, particularly for innovations

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T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

(Hellmann & Puri, 2000). Based on patterns of investment in INVs by (Baum et al., 2011; Levinthal & March 1993; Marvel et al., 2020).
institutional investors who are less interested in long-term techno- Since this cognitive myopia is likely to cause overconfidence, it may
logical innovation performance due to their short-term “rent-seek- be difficult to expect progressive learning effects from professional
ing” tendency, we postulate the following hypothesis: experience (Welch & Welch, 2009). Even in cases of international sur-
Hypothesis 2 (H2): Institutional ownership has a negative rela- vival, the narrow mindset generated by domestic learning can make
tionship with technological innovation performance of INVs. old firms more likely to ignore, misinterpret, or reject valuable infor-
mation they receive from foreign markets, all of which are inappro-
Moderation role of founder’s learning experience priate behaviors in which INVs should never engage (Carr et al.,
2010; Nadkarni et al., 2011). Based on the above discussion of how
Prior professional experience founders’ myopic learning attitude and overconfidence caused by
professional experience can narrow the perspective of insider owners
Although most previous studies assume that the experience of in terms of technological opportunities in the market, therefore caus-
startup founders as human capital plays a vital role in enhancing ing them to not sufficiently convince institutional investors, we put
innovation performance, such as by executing corporate R&D, devel- forth the following hypotheses:
oping new products, and seizing market opportunities (Kato et al., Hypothesis 3a (H3a): Founder’s prior professional experience
2015; Marvel et al., 2020; Shepherd & DeTienne, 2005), we attempt negatively moderates the relationship between insider ownership
to assert that a founder’s extensive professional experience might and technological innovation performance of INVs.
not necessarily have positive effects on innovative performance. The Hypothesis 3b (H3b): Founder’s prior professional experience
presence or absence of a founder/manager’s professional background negatively moderates the relationship between institutional owner-
experience may determine the degree to which a company invests in ship and technological innovation performance of INVs.
the R&D that is essential for technological innovation (Barker III &
Mueller, 2002). This causal association has been convincingly shown Prior start-up experience
in small electronics and software companies (Romijn & Albaladejo,
2002). However, Bacon-Gerasymenko (2019) have argued that, Founders with a learning perspective that allows them to recog-
although managers in venture firms can learn from their past suc- nize the importance of technology investment through startup expe-
cesses, their learning propensity declines after a certain amount of rience exhibit a more positive attitude toward innovation
experience because they may gradually come to rely on heuristics performance (Newbert et al., 2007). Such startup experience among
and mental short-cuts, which hinders new learning. Venture firms founders provides insider owners with information on the direction
are likely to learn from recent accomplishments, whereas insights of technological trajectory (Baum et al., 2014), which can help INVs
from bygone or obsolete experiences may harm future performance. effectively manage complicated and long-term innovation outcomes
Miller (1991) has suggested that, because CEOs’ prolonged tenure (Choi & Shepherd, 2004; Dencker & Gruber, 2015). D’Angelo & Pre-
limits their ability to strategically and structurally match the new sutti (2019) have unveiled a positive moderating effect of a founder’s
environment with their own companies, they will not be able to keep prior experience with a start-up by fostering a learning perspective
up with the changing environment, resulting in poor company per- regarding effects of entrepreneurial orientation and learning orienta-
formances. In other words, since the founder’s professional knowl- tion on growth of Italian SMEs (Fernandez-Mesa & Alegre, 2015). Hsu
edge is closely related to the firm’s technological innovation, (2007) has found that entrepreneurs with many start-up experiences
technological innovation performance might be reduced when path- are fully aware of public relations, social networks, and industry
breaking changes are not sought while path-dependency is bol- dynamics that are necessary for each investment stage. Such aware-
stered. ness allows them to raise extra external funds with experiential
Prior professional experience of founders might have a side effect learning. In other words, founders with substantial start-up experi-
of slowing capture of new technological opportunities. This may not ence in INVs can adapt to resource-limited conditions and solve likely
be able to suppress investment-recovery opportunism among institu- problems, which further reduces uncertainty about long-term invest-
tional investors (Lee et al., 2020; Zhang et al., 2019). Although institu- ment for insider owners by developing skills and abilities within
tional investors may hamper R&D activities for technological them to deal with inherent problems (Dencker & Gruber, 2015; Tietz
innovation by thwarting founders’ long-term risk-taking decisions et al., 2021).
and applying continuous pressure to only pursue short-term results, In addition, founders with startup experience can help enhance
founders caught in the inertia of their own professional experience the firm’s understanding and responsiveness to the market by acquir-
may not fully comprehend the foci of the execution of such decisions ing investment techniques optimized for INVs and corporate resource
(Stein, 1988; Zuzul & Tripsas, 2020). expansion strategies (Deligianni et al., 2020; Newbert et al., 2007;
From an institutional investor’s rent-seeking perspective, addi- Zhang, 2011). Since prior start-up experience allows founders to
tional investment can be facilitated for INVs’ technology innovation more easily reach solutions to acquire opportunities in the market
performance when there is a need for more resources with consider- and utilize their technological capabilities for long-term investment
able confidence in their success (Florin, 2005; Zhang et al., 2019). outcomes, such successes and failures can furnish insider owners
However, asymmetric information problems in such long-term with a broader range of opportunities and higher probability than
decision-making processes between institutional investors and past attempts (Dencker & Gruber, 2015). This prior start-up experi-
founders may mainly arise from the founder’s obsession with reliance ence of a founder can further enhance communication, network, and
on past professional experience, resulting in no additional funding information competencies within INVs, all of which can help over-
(Amit et al., 1990; Gompers, 1995; Shane & Cable, 2002). Although come the liability of smallness, thus providing them with first-hand
the prior professional experience of the founder has been shown to insight into how to utilize and coordinate limited resources (Wales et
be effective to some extent in the initial stage, its value deteriorates al., 2013). Therefore, startup experience of the founder can help
in investors’ importance list beginning from the second funding insider owners avoid past mistakes to achieve long-term investment
round (Ko & McKelvie, 2018). Rich professional experience of found- purposes, thus helping INVs achieve desirable technological innova-
ers of INVs with an advantage of significantly reducing the cost for tion performances (Farmer et al., 2011).
trial attempts to arrive at optimal solutions could increase one’s We argue that learning perspectives of founders acquired through
self-confidence by causing them to undervalue their past failure startup experience can help alleviate the negative relationship
experiences and overvalue successful ones due to potential myopia between institutional investors and INV’s technological innovation
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T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

performance. Founders with venture-backed start-up expertise are Our data were derived from the 2019 Survey Database for New
believed to have developed ties with venture capitalists. These Ventures in Korea, which was conducted by the Korean Ministry of
foundrs not only have experience working with venture capitalists, SMEs and Startups and Korea Venture Business Association in
but also are likely to know the group of experts who work closely December 2019. This database consisted of more than 30,000 Korean
with venture capitalists. By contrast, founders with no start-up expe- new venture firms commonly defined as SMEs according to Korea’s
rience are less likely to have built such relationships with venture Act on Special Measures for the Promotion of Venture Businesses.
capitalists (Zhang, 2011). In a study examining factors influencing Given the objective of this study, which was to explore the topic of
access to external financing for 1869 startups in 27 countries, Nof- technological innovation performance in the context of INVs, we
singer & Wang (2011) have found that institutional investors intentionally selected the final sample of firms from the survey data-
thoughtfully consider the degree of investor protection when decid- base based on a series of specific screening criteria. First, the final
ing to invest in startups with the aim of preventing moral hazards sample for our analysis was limited to new ventures that could
such as information asymmetries and the misuse/misallocation of undertake innovative activities. Firms that were unable to satisfy this
funds for personal benefit. Since the survivability of a business and criterion were excluded from final data analysis (e.g., delisted and
the usage of previously obtained funds are difficult to secure and capital impairment). Second, sample firms intended to be included in
ascertain during the initial fundraising stage, a start-up in its early our final analysis ware new ventures that were actively engaging in
stage heavily relies on informal financing sources (e.g., the founder’s international expansion through exporting or other international
relatives, friends, and neighbors) (Vos et al., 2007). In terms of tech- marketing activities. We also limited our analysis to relatively young
nological innovation investments between an experienced founder and small new ventures that made at least 20% of their total sales
with prior start-up experience and institutional investors, VCs are from international markets within three years of their inception
highly likely to regard founders as having a deepened acumen of (Zhou et al., 2010). In doing so, we excluded some firms that were no
investor protection, while such experiences are considered to be a longer engaged in international activities or that made less than 20%
substantial signal to reduce the extent of moral hazards. Therefore, of their total sales from international markets. This selection criteria
the startup experience of founders in INVs can also help them fathom allowed us to primarily focus on INVs that rapidly undertook interna-
the ecosystem of VCs. It is valuable to elucidate at what time, how, tional expansion in the early stage and to better understand and
and with whom long-term plans (e.g., technological R&D) should be address important issues related to the role of corporate governance
discussed. Thus, we have the following hypotheses: and founder competencies in explaining their variations in innova-
Hypothesis 4a (H4a): Founder’s prior start-up experience can pos- tion performance.
itively moderate the relationship between insider ownership and
technological innovation performance of INVs.
Hypothesis 4b (H4b): Founder’s prior start-up experience can Variables and measurements
positively moderate the relationship between institutional owner-
ship and technological innovation performance of INVs. All variables used in our analysis were measured based on the
approach developed in prior related research. Table 1 presents a
Methods description of each variable of interest.

Data and sample

Dependent variable
To empirically test the hypotheses proposed in this study, we uti-
lized a dataset of Korean INVs. Korea has a valuable research setting Consistent with prior studies (Spencer, 2003), we conceptualized
in which innovation performance implications of INVs could be technological innovation performance as an INV’s ability to develop
explored for the following reasons: Korea represents one of the most technological advances and protect related intellectual property. To
successful economies in terms of having carried out market liberal- measure the quality of an INV’s technological advances, we measured
ization and promoting international expansion of their firms. More technological innovation performance based on the total number of
importantly, new ventures have formed the backbone of Korean eco- registered patents (Phene & Almeida, 2008; Shan et al., 1994; Shin et
nomic development over the past several decades. According to the al., 2016).
business statistics released by Korean Ministry of SMEs and Startups,
there are roughly 3.5 million new ventures (i.e., SMEs) in Korea,
accounting for about 99.9% of all Korean firms and contributing to Independent variables
83% and 34% of total employment and exports, respectively. Korea is
also one of the most innovative economies in the world. According to The ownership structure of a firm has considerable implications
a report released by the World Intellectual Property Organization for its ability to create technological advances and develop patented
(WIPO), Korea has become one of the world’s leading innovative products or services that are technologically viable. It is therefore
players, ranking fifth in the WIPO’s Global Innovation Index 2021, important to fully capture the relationship between an INV’s owner-
even placing ahead of Singapore and Japan. In the last eight years, the ship structure and its technological innovation performance. To mea-
number of new ventures increased from 28,193 to 39,101 and the sure an INV’s ownership structure, we included two independent
average number of patents per venture rose from 3.5 to 5.3. A total of measures of the INV’s ownership structure: insider ownership and
817,000 people were newly hired by these ventures, which was more institutional ownership. The measure of insider ownership describes
than the number of people newly hired by the total of four major ownership by insider investors. Following prior related studies
conglomerates (i.e., Samsung, SK, Hyundai, and LG) in 2021. The aver- (Bethel & Liebeskind, 1993; Chaganti & Damanpour, 1991; Kacperc-
age R&D cost of Korean ventures was 325 million Korean won, zyk, 2009), we measured the degree of insider ownership of the INV as
accounting for 5.5% of sales, which was substantially higher than the stock owned by the INVs’ insiders, including the founder(s), fam-
those of SMEs (0.7%) and conglomerates (1.5%). This indicates that ily and relative owners, and employees. Consistent with findings of
ventures are actively investing in technology development. INVs prior research (Knippen et al., 2019; Musteen et al., 2009), we cap-
from Korea are currently playing a pivotal role in driving the innova- tured the degree of institutional ownership of each INV as the percent-
tive national competitiveness and responding to the rapidly changing age of total outstanding common shares held by all institutional
global technological environments. investors.
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T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

Table 1
Definitions of variables.

Variables Definition

Technological innovation The number of registered patents

performance
Insider ownership The total proportion of firm shares owned by the founders, their families and relatives, and the firm’s employees
Institutional ownership The total proportion of firm shares owned by venture capitals and angel investors
Professional experience The years of professional experience the founder has had before establishing the current INV
Startup experience The number of startups the founder has had experience with before establishing the current INV
Firm size The natural logarithm of the total number of employees
R&D intensity R&D expenditures divided by total sales
Leverage Total debt divided by total assets
Return on assets (ROA) Net income divided by total assets
Sales growth Annual sales change
Manufacturing A binary variable equal to “1” if the firm’s industry is manufacturing and equal to “0” otherwise
Founder age A category variable equal to “1”, “2”, “3”,” 4”, and “5” when the INV founders were in their 20 s, 30 s, 40 s, 50 s, and over 60, respec-
tively, as of when the focal INV was founded.

Moderating variables al., 2018). Because a firm’s motivation to innovate might be influ-
enced by the firm’s financial performance (Cassiman & Valentini,
To explore individual-level moderating effects explained by INV 2016; Cyert & March, 1963; Yanadori & Cui, 2013), we included an
founders’ characteristics, we examined the role played by INV found- INV’s financial performance measured by return on assets (ROA) cal-
ers’ prior professional and start-up experiences. Following the culated as the net income divided by total assets as well as sales
approach taken in existing studies (Protogerou et al., 2017; Symeoni- growth measured as annual percentage in total sales. To control for
dou & Nicolaou, 2018), we measured prior professional experience as industry-specific effects on technological innovation performance,
INV founders’ prior work experience before founding the current INV we included a dummy variable, which was coded “100 for a
in number of years. Moreover, following prior literature (Delmar & manufacturing industry and as “000 for a non-manufacturing industry
Shane, 2006; Symeonidou & Nicolaou, 2018; Uy et al., 2013), we con- (Adomako et al., 2019; Khavul et al., 2010). Finally, following prior
ceptualized prior start-up experience as prior firm-founding experi- studies (Chatterji et al., 2019; Eesley et al., 2014), we controlled for
ence, which was computed as the total number of firms established individual-level general knowledge and experience by including
by INV founders before they established the current INV. INV’s founder age measured as the focal founder’s age in number of
years at the time of the INV’s founding.
Control variables

To rule out alternative explanations for INVs’ technological inno- Analyses and empirical results
vation performance, we included a range of control variables: firm
size, R&D intensity, leverage, profitability, sales growth, and founder Results of descriptive analysis and correlation coefficients of
age. As large firms might have more resources and knowledge that major variables are shown in Table 2. Correlation coefficients were
can be used to make greater contributions to technological innova- under 0.66, indicating no evidence of multicollinearity. We also cal-
tion performance, we controlled for firm size, which was measured as culated average variance inflation factor (VIF) values in models. They
the natural logarithm of the total number of each firm’s employees were below 2.1, further confirming that multicollinearity was less
(Laursen & Salter, 2006; Yanadori & Cui, 2013). Since R&D intensity likely to affect the analysis of this study. Nevertheless, we followed
reflects a firm’s inputs to technological innovation, we controlled for procedures suggested by Aiken et al. (1991) and created interaction
such technology input. We then measured R&D intensity as R&D terms by centering all independent and moderating variables
expenditure divided by net sales (Laursen & Salter, 2006; Yayavaram included in interaction terms. To empirically test our hypotheses, we
& Chen, 2015). As financial conditions might reflect a firm’s risk-bear- used Poisson regression models because the dependent variable—
ing capability and a firm’s capability to acquire financing from exter- technological innovation performance—was measured in the present
nal institutions and spare resources for innovation, we included the work by the number of patents. As our dependent variable followed a
leverage ratio measured as the INV’s total debt divided by total assets distribution centered at zero, we estimated technological innovation
to control for financial leverage effects (Chang & Rhee, 2011; Deng et performance using a Poisson regression model commonly used in

Table 2
Descriptive statistics and correlations.

Variables Mean SD 1 2 3 4 5 6 7 8 9 10 11 12

1. Technological innovation performance 11.78 14.65 1.000

2. Manufacturing 0.82 0.38 0.125 1.000
3. Firm size 3.42 1.13 0.130 0.062 1.000
4. Return on assets (ROA) 0.01 0.32 0.028 0.004 0.088 1.000
5. Sales growth 0.25 1.21 0.041 0.032 0.101 0.086 1.000
6. Leverage 0.66 0.97 0.024 0.102 0.173* 0.468* 0.012 1.000
7. R&D intensity 0.44 2.32 0.044 0.050 0.188* 0.354* 0.079 0.551* 1.000
8. Founder age 3.13 0.91 0.084 0.118 0.064 0.091 0.036 0.003 0.065 1.000
9. Insider ownership 80.60 24.50 0.129 0.198* 0.271* 0.208* 0.060 0.097 0.032 0.070 1.000
10. Institutional ownership 6.47 14.52 0.017 0.169* 0.161* 0.294* 0.016 0.061 0.049 0.048 0.661* 1.000
11. Professional experience 11.64 8.73 0.019 0.082 0.006 0.025 0.112 0.038 0.095 0.373* 0.016 0.012 1.000
12. Startup experience 0.89 0.60 0.178* 0.054 0.117 0.043 0.050 0.052 0.024 0.034 0.063 0.031 0.030 1.000
Notes: N = 219.
* p < 0.05.

7
T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

Table 3
Results of regressions for INV’s technological innovation performance.

Variable Model 1 Model 2 Model 3 Model 4 Model 5

Manufacturing 0.011*** 0.013*** 0.013*** 0.014*** 0.013***

(0.062) (0.063) (0.063) (0.064) (0.063)
Firm size 0.010*** 0.007*** 0.005** 0.006*** 0.004**
(0.019) (0.019) (0.020) (0.020) (0.020)
Return on assets (ROA) 0.004** 0.004* 0.001 0.002 0.004*
(0.058) (0.068) (0.065) (0.076) (0.071)
Sales growth 0.003 0.002 0.003 0.003 0.004*
(0.022) (0.022) (0.023) (0.023) (0.025)
Leverage 0.001 0.001 0.003 0.004 0.004
(0.034) (0.034) (0.033) (0.034) (0.033)
R&D intensity 0.004 0.006** 0.005* 0.005* 0.004*
(0.013) (0.014) (0.013) (0.013) (0.013)
Founder age 0.006*** 0.005*** 0.004** 0.005*** 0.004**
(0.023) (0.024) (0.024) (0.024) (0.024)
Professional experience 0.002 0.003* 0.003 0.004** 0.002
(0.002) (0.002) (0.009) (0.002) (0.009)
Startup experience 0.012*** 0.014*** 0.014*** 0.031*** 0.019*
(0.031) (0.031) (0.031) (0.186) (0.190)
H1: Insider ownership 0.016*** 0.012*** 0.012*** 0.012**
(0.001) (0.002) (0.002) (0.002)
H2: Institutional ownership 0.010*** 0.026*** 0.010* 0.014**
(0.002) (0.003) (0.004) (0.005)
H3a: Insider ownership£Professional experience 0.008 0.009
(0.000) (0.000)
H3b: Institutional ownership£Professional experience 0.022*** 0.021***
(0.000) (0.000)
H4a: Insider ownership£Startup experience 0.013 0.002
(0.002) (0.002)
H4b: Institutional ownership£Startup experience 0.022*** 0.013**
(0.004) (0.004)

Pseudo R2 0.071 0.096 0.125 0.106 0.130

Chi2 270.649*** 366.285*** 478.952*** 404.774*** 499.291***
AIC 3576.252 3484.615 3375.949 3450.126 3359.609
BIC 3610.142 3525.284 3423.396 3497.573 3413.834
N 219 219 219 219 219
Notes: Reported values denote standardized regression coefficients with standard errors in parentheses. AIC = Akaike information cri-
terion, BIC = Bayes information criterion.
* p < 0.05.
** p < 0.01.
*** p < 0.001.

previous studies explaining patent counts (Baum et al., 2000; Hall & different effects on INVs’ technological innovation performance
Helmers, 2019; Reitzig & Wagner, 2010).1 enhancement, specifically by positively and negatively contributing
Table 3 presents Poisson regression results of main and interac- to INVs’ technological innovation performance, respectively.
tion effects with standardized coefficients we used to test our Model 3 presents results for Hypotheses 3a and 3b regarding neg-
hypotheses. Model 1 of Table 3 reports results of the baseline model ative moderating effects of prior professional experience of INV
with only control variables included. Model 2 of Table 3 present founders. As shown in Model 3, the interaction term between insider
results of testing our two baseline hypotheses regarding main effects ownership and INV founders’ prior professional experience was
of two ownership-specific parameters on INVs’ technological innova- found to be positive but statistically insignificant (b = 0.008, n.s.).
tion performance. Hypothesis 1 proposes that insider ownership can This result did not provide support for Hypothesis 3a. By contrast, the
increase technological innovation performances of INVs. Corroborat- interaction term between institutional ownership and INV founders’
ing Hypothesis 1, the effect of insider ownership on INVs’ technologi- prior professional experience was found to be negative and statisti-
cal innovation performance in Model 2 was found to be statistically cally significant (b = 0.022, p < 0.001), thus providing support for
significant and positive (b = 0.016, p < 0.001). In contrast to the posi- Hypothesis 3b. In Model 4, we tested positive moderating effects of
tive effect of insider ownership, Hypothesis 2 proposes that institu- INV founders’ prior startup founding experience on respective contri-
tional ownership will be negatively associated with INVs’ butions of insider ownership and institutional ownership to INVs’
technological innovation performances. As we hypothesized, the technological innovation performances. Results of Model 4 indicated
effect of institutional ownership in Model 2 was found to be signifi- that, while the interaction term between insider ownership and prior
cant and negative (b = 0.010, p < 0.001), providing support for startup founding experience was positive but insignificant (b = 0.013,
Hypothesis 2. These results therefore provide evidence supporting n.s.), the interaction term between institutional ownership and prior
the view that insider ownership and institutional ownership have startup founding experience was positive and statistically significant
(b = 0.022, p < 0.001). These results provide strong empirical evi-
1
For robustness check of Poisson regression results, we also conducted analyses dence regarding the importance of prior startup founding experience
using negative binominal regression models and zero-inflated Poisson regression with of INV’s founders in weakening the negative contribution of institu-
corrected Vuong test (ZIPCV) estimations. Results of regression analyses using negative tional ownership to the INV’s technological innovation performance,
binominal regression and ZIPCV estimations are qualitatively similar to results
obtained using Poisson regression models. Due to space constraints, we chose to only
thus supporting Hypothesis 4b. However, the statistically insignifi-
report results of Poisson regression models. Results of our robustness checks are avail- cant interaction coefficient between insider ownership and prior
able upon request. startup founding experience did not support Hypothesis 4a. Overall,
8
T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

results shown in Models 3 and 4 indicate that INV founders’ prior 2018). However, H3a was rejected. H4a and H4b suggest that a
professional experience and startup founding experience are impor- founder with start-up experience can effectively strategize about an
tant for INVs’ technological innovation performance by negatively INV’s investment round using proficient social networks and public
and positively interacting with institutional ownership, respectively. relations as well as prove viable usage of obtained funds with a prop-
These results strongly support Hypotheses 3b and 4b, respectively. erty guarantee (Hsu, 2007; Nofsinger & Wang, 2011). With multiface-
However, rejections of Hypotheses 3a and 3b shown in Models 3 and ted strengths of the founder’s previous startup experience, the
4, respectively, demonstrate that the link between INVs’ insider own- rationale that the liability of smallness could be overcome by effi-
ership and their technological innovation performances is indepen- ciently utilizing limited resources is statistically significant (Wales et
dent of their founders’ prior professional and startup founding al., 2013). However, H4a was rejected while H4b was supported.
experience. Finally, Model 5 provides results of the full model that Regarding the moderating effect of the founder’s learning orienta-
includes all main and interaction effects. As shown in Model 5, all tion, neither professional (H3a) nor startup experience (H4a) were
main and interaction effects are highly consistent with and robust to found to significantly interact with insider ownership. For this insig-
results of separate models. In the following section, we will present nificance of moderation, we suspect homophily between founder’s
results, provide possible reasons for the unsupported hypothesis, and prior experience and insider ownership. Homophily, which refers to
offer relevant theoretical and managerial implications. an affinity in sociodemographic and behavioral domains in personal
social networks, occurs more often with people with similar charac-
Discussion and conclusion teristics than in people with dissimilar characteristics (McPherson et
al., 2001). In the establishment of an INV, the most influential mem-
The purpose of this study was to verify primary factors influencing bers among insiders—after the founders—are informal investors
investment in technological innovation under the unique corporate who are entrepreneurial co-decision-makers who are typically close
governance of INVs compared to that of traditional incumbents with or extended family members and friends. Benefiting from the spill-
formal governance consisting of dispersed ownership. Existing stud- over knowledge effect from peer groups, informal investors make
ies have highlighted R&D investment (Ramos-Hidalgo et al., 2022), investment decisions even when their entrepreneurial capital is
dynamic capabilities (Buccieri et al., 2021), and network resources insufficient (Qin, Mickiewicz, & Estrin, 2022). For example, Nofsinger
(Gerschewski et al., 2018) as key long-term investments for the sur- & Wang (2011) have examined determinants of the initial startup
vival of INVs. However, based on the traditional agency theory, this financing of entrepreneurial firms in 27 countries and found that
study ascertains the effect of multiple principal issues arising from informal investors with social ties to founders do not value their
conflicting interests among multiple principals in INVs on technologi- startup experience since they already know relevant private informa-
cal innovation and proposes a moderating effect of founder’s human tion such as abilities, characteristics, and network resources. In sum,
capital through learning (i.e., professional and startup experience). we conjecture that insider owners in INVs would not be exceptionally
Results of hypothesis testing indicated that insider ownership could drawn to founders’ prior experience in decision making on techno-
positively affects technological innovation of INVs, whereas institu- logical innovation due to their similar shared social background and
tional ownership had a negative effect. While founder’s learning-pro- private trust in entrepreneurial capital (i.e., the homophily effect).
fessional and startup experiences both had insignificant interactions Moreover, when comparing results, the negative effect of institu-
with insider ownership, their entrepreneurial learning could tional owners on technological innovation performance was found to
strengthen INVs’ technological investment through interactions with be negatively moderated by founder’s professional experience (H3b)
institutional investors (Frese et al., 2020). and positively moderated by his/her startup experience (H4b). VCs
The technological innovation performance of INVs, which is an might have more negative perceptions of long-term investment
indispensable factor in enhancing future competitiveness and sur- because they expect that the value of the current technology will
vival that necessitates ample resources and persistent endeavors, decrease further when the founders are arrogant/conceited about
might cause information asymmetry problems among multiple prin- their professional history (Nofsinger & Wang, 2011; Qin, Mickiewicz,
cipals, namely insider owners and institutional investors (Arthurs et & Estrin, 2022). However, since founders with start-up experience
al., 2008; Buccieri et al., 2020). Since insider owners are oriented have faced various challenges, failures, and/or successes in their pro-
toward continuous growth of INVs from a long-term perspective fessional history, VCs tend to highly appreciate the potential of INVs’
(Picken, 2017), we proposed in H1 a positive causal relationship of technological innovation (Kato et al., 2015; Marvel et al., 2020).
insider ownership on investment in technological innovation, which
was found to be significantly supported. In H2, we proposed that Theoretical implications
institutional investors’ short-term rent-seeking tendencies (Callen &
Fang, 2013)—unlike insider owners’ longstanding endurance—could This study developed a theory that could be used to assess the sit-
negatively affect investment in technological innovation, which was uation involving the occurrence of conflicting voices between insider
also significantly supported. owners and institutional investors in INVs for technological innova-
Learning by the entrepreneurial orientation of founders can be tion performance and how problems could be relieved by a founder’s
subdivided into professional experience related to fields and experi- prior experiences. We believe that multiple principal perspectives
ence with establishing startups specifically (Frese et al., 2020). H3 are well suited for clarifying this issue because of discordant objec-
presumes that founder’s prior professional experience could nega- tives of bilateral principals involved in INVs’ long-term decision-mak-
tively interact with insider and institutional ownership, two groups ing. Therefore, this study contributes to existing research examining
where multiple principal problems on technological innovation technological innovation performance of INVs by presenting multiple
investment have arisen. The possibility of myopic perception caused principal issues and founder’s prior experience as key factors.
by founder’s prolonged learning by prior professional experience First, this study extends prior literature showing that fundamental
could increase self-confidence, lead to distorted interpretations of principals’ contrasting perspectives on technological investment by
past successes and failures, and foster an obsession with reliance on embracing multiple principal difficulties in INVs might cause them to
past know-how (Amit et al., 1990; Baum et al., 2011; Gompers, 1995; have different ideas about short-term and long-term decision-mak-
Levinthal & March, 1993; Marvel et al., 2020; Shane & Cable, 2002). ing. Since new ventures grow at the initial stage of establishment
In particular, the vulnerable feeling that investors might not highly through informal sources such as family and friends and require sup-
esteem founders’ prior professional experience in the subsequent port from VCs to secure more funding and corporate credibility and
funding round led to significant support for H3b (Ko & McKelvie, visibility, previous studies have mainly focused on the relationship
9
T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

between founder and VCs as a reciprocally complementary relation- and time (Buccieri et al., 2020; Manso, 2011; Zahra, 2005). Since
ship from a resource point of view, wherein VCs furnish several stakeholders of INV with their own interests can react in various
resources (e.g., management know-how and investment networks) ways to the idea of investing in long-term and uncertain projects
to help assemble efficient governance mechanisms that startups lack such as R&D projects (Bushee, 1998; Martin et al., 2020), INV manag-
(Cavallo et al., 2019; Freear et al., 1994, 2002, 1994). However, for ers need to regularly signal toward, monitor, and convince both
technological innovation investment as a driver of long-term perfor- insider owners and institutional investors to minimize multiple prin-
mance with high uncertainty, founders are willing to take risks and cipal problems, leading to investment in R&D projects (Callen & Fang,
give weight to the survival and growth of INVs (Tang et al., 2016), 2013; Young et al., 2008).
while institutional investors expect to recover their investment and Second, the advantage of having institutional investors is indis-
profits in a short period (Bushee, 2001b; Callen & Fang, 2013), leading pensable for INVs to achieve their innovative capabilities and succeed
to conflicts between the two principals. Although previous studies on in the international market. We confirmed that aggravation of multi-
agency problem have suggested the possibility of conflicting opinions ple principals in INVs was plausible and that founders’ professional
between principal and agent due to information asymmetry or goal experiences could negatively affect technological innovation. This
conflict from a risk aversion perspective (Eisenhardt, 1989), we put therefore indicates that it is desirable for INV managers to develop
forth the idea that vulnerability of technology investment as a driver situational agility that allows for flexible responses that can provide
of long-term performance in INVs might also intensify such issues faith to institutional investors without relying on past professional
(Arthurs et al., 2008; Lahr & Mina, 2016). experience (Bacon-Gerasymenko, 2019; Miller, 1991). Therefore, INV
Second, this study employed the learning theory of founders’ managers should place reduced emphasis on past professional expe-
human capital to suggest that professional experience could nega- rience for technological innovation while remaining wary of inertia
tively affect the stance taken by the institutional investors regarding and securing a broad perspective to show situational agility to insti-
technological innovation performance. A founder’s prior professional tutional investors (Nadkarni & Herrmann, 2010; Zuzul & Tripsas,
experience attesting to the quality and competence of managerial 2020).
teams could result in reduced investment uncertainty of institutional Third, we advise founders lacking startup experience to compen-
investors and less monitoring of INVs’ decision-making process (His- sate for that lack of experience with knowledge absorption through
rich & Jankowicz, 1990; Rock, 1987; Sapienza & Gupta, 1994). How- indirect learning using personal networks. Learning through bound-
ever, since learning by prior professional experience is more likely to ary spanning is an essential competency for managers of organiza-
lead to acquisition of inferences and incremental gains through refer- tions operating in an internationalized environment. Thus, the
ences to central elements of past environments, learners (i.e., found- founder’s experience in startups is an important source of networks
ers) repeatedly only partake in more habituated and capable (Yli-Renko et al., 2002). Since human-capital network resources pro-
activities, thus weakening their other knowledge bases and exacer- vide INV managers with various opportunities for new ideas, market
bating their risk of being immersed in myopic learning. Furthermore, shifts, and technological innovations to acquire diverse knowledge
experiences that are successful in the short run might cause failure in (Bhagavatula et al., 2010; Grichnik et al., 2014; Laursen et al., 2012),
the long run due to confidence formed from past successes, thus gen- it is worthwhile for managers to indirectly learn through personal
erating biased memories that are misleading compared to factual networks, which may provide them with helpful clues when they are
records (Levinthal & March, 1993). Altogether, this may indicate that faced with new technology challenges (Almeida & Kogut, 1999; Bie-
institutional investors in INVs could negate or even devalue the mans, 1991; Conway, 1995; Davidsson & Honig, 2003).
founder’s abundant prior professional experience in technological
innovation investment decision-making (Ko & McKelvie, 2018). Limitations and future research
Third, this study uncovered that a founder’s previous startup
experience known to play a narrowing role in information asymme- Despite these implications, our study has some limitations. First,
try between institutional investors and insider owners in INVs could we focused on founder’s learning experiences and multiple principal
enlighten multiple principal problems related to technological inno- governance problems to better understand INV’s technological inno-
vation investment (Gifford et al., 2021). Serial founders who have vation performance. Future research should single out potential
sequentially run multiple businesses are more realistic about failure related to the board of directors’ composition and socioeconomic
than novice founders. They accordingly adjust their expectations background since directors and outside directors of INVs can be orga-
based on their experiences. Among outcomes of experience, serial nized differently than those of traditional firms. Second, to delineate
founders are more inclined to collect evidence that can help INVs technological innovation performances of INVs in a comparative con-
have an optimistic mindset rather than dwelling on reasons for fail- text, future studies should incorporate how compositions and charac-
ure by obsessing over negative results (Hsu, 2007; Zhang, 2011). Our teristics of the board of directors interact with the ownership
findings are consistent with those of Ucbasaran et al. (2011), which structure in developed/emerging countries into their models (Ado-
underscored that institutional capitalists should consider the past mako et al., 2019). Third, risk preferences have long been regarded as
startup experiences of serial entrepreneurs before making invest- essential elements of entrepreneurship (Al-Mamary & Alshallaqi,
ment decisions. The founder’s previous startup experience grants 2022). Each firm might have different risk preferences, implying that
institutional investors with confidence about the learning back- those components might also influence INVs’ technological innova-
ground and eases information asymmetry and unrest for INVs’ tech- tion performance. However, we did not consider them. Thus, future
nological innovation performance. studies should consider impacts of CEO characteristics, environmen-
tal uncertainties, and so on. Fourth, we struggled to understand the
Managerial implications moderating role of founders’ learning experiences as adjusting multi-
ple principal problems in INVs. However, founders’ other ability-
This study proffers the following managerial implications that can related moderating factors (e.g., educational attainment, high-tech
provide guidance to managers of INVs. First, it is important to prepare industry experience, and foreign experience) might affect technologi-
a bargaining logic that prevents insider owners and institutional cal innovation performances of their INVs (Protogerou et al., 2017).
investors from falling into a deadlock for INVs to achieve high tech- Indeed, since startup experience can enhance understanding of tech-
nological innovation performance. For INVs, technological innovation nology trajectory according to our findings, we envision that technol-
is an essential method to succeed in the global market and secure ogy-based experiences of founders (or directors) will become an
future competitiveness. However, it also requires a lot of resources increasingly crucial aspect of long-term growth of INVs. Further, the
10
T. Roh, B.I. Park and S. Xiao Journal of Innovation & Knowledge 7 (2022) 100274

lack of longitudinal information prevented us from conducting a Buccieri, D., Javalgi, R. G., & Jancenelle, V. E. (2021). Dynamic capabilities and perfor-
dynamic analysis of factors that might contribute to technological mance of emerging market international new ventures: Does international
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nue for future research is to assess longitudinal performance implica- Bushee, B. J. (1998). The influence of institutional investors on myopic R&D investment
tions of INVs’ corporate governance and their founders’ behavior. Accounting Review, 73(3), 305–333.
Bushee, B. J. (2001b). Do institutional investors prefer near-term earnings over long-
characteristics using a longitudinal research design. Finally, we used run value? Contemporary Accounting Research, 18(2), 207–246.
only quantitative data. We believe that additional utilization of quali- Callen, J. L., & Fang, X. (2013). Institutional investor stability and crash risk:
tative information, the so-called employment of triangulation, can Monitoring versus short-termism? Journal of Banking & Finance, 37(8), 3047–
3063.
enrich empirical findings.
Carr, J. C., Haggard, K. S., Hmieleski, K. M., & Zahra, S. A. (2010). A study of the moderat-
ing effects of firm age at internationalization on firm survival and short-term
Data availability statements growth. Strategic Entrepreneurship Journal, 4(2), 183–192.
Cassiman, B., & Valentini, G. (2016). Open innovation: Are inbound and outbound
knowledge flows really complementary? Strategic Management Journal, 37(6),
Data available on request from the authors 1034–1046.
Cavallo, A., Ghezzi, A., Dell’Era, C., & Pellizzoni, E. (2019). Fostering digital
entrepreneurship from startup to scaleup: The role of venture capital
Funding funds and angel groups. Technological Forecasting and Social Change, 145, 24–
35.
This research received no external funding. Cavusgil, S. T., & Knight, G. (2015). The born global firm: An entrepreneurial and capa-
bilities perspective on early and rapid internationalization. Journal of International
Business Studies, 46(1), 3–16.
Declaration of Competing Interest Chaganti, R., & Damanpour, F. (1991). Institutional ownership, capital structure, and
firm performance. Strategic Management Journal, 12(7), 479–491.
Chang, S.-. J., & Rhee, J. H. (2011). Rapid FDI expansion and firm performance. Journal of
The authors declare no conflict of interest International Business Studies, 42(8), 979–994.
Chatterji, A., Delecourt, S., Hasan, S., & Koning, R. (2019). When does advice impact
startup performance? Strategic Management Journal, 40(3), 331–356.
Acknowledgments Choi, S. B., Park, B. I., & Hong, P. (2012). Does ownership structure matter for firm tech-
nological innovation performance? The case of Korean firms. Corporate Gover-
This work was supported by the Soonchunhyang University nance: An International Review, 20(3), 267–288.
Choi, Y. R., & Shepherd, D. A. (2004). Entrepreneurs’ decisions to exploit opportunities.
Research Fund and Sookmyung Women’s University Research Grants. Journal of Management, 30(3), 377–395.
This work was partially supported by Hankuk University of Foreign Chung, W. Y., Lee, J.-. G., Seo, J., Kim, J., Jo, Y., & Lee, D. (2022). From whom should ICT
Studies Research Funds. startups raise capital? The effect of ownership structure on efficiency in new ICT
startups. International Review of Economics & Finance forthcoming.
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Ucbasaran, D., Westhead, P., & Wright, M. (2011). Why serial entrepreneurs don’t learn Dr. Taewoo Roh is currently an Associate Professor of International Business and Strat-
from failure. Harvard Business Review, 89(4), 26. egy at Global Business School, Soonchunhyang University, Asan-si, Korea. His research
Uy, M. A., Foo, M.-. D., & Song, Z. (2013). Joint effects of prior start-up experience and interests center on environmental sustainability, green management, global strategy,
coping strategies on entrepreneurs’ psychological well-being. Journal of Business knowledge and innovation, and business ethics. He has published in such journals as
Venturing, 28(5), 583–597. Journal of Business Ethics, Technological Forecasting and Social Change, Journal of Environ-
Voorn, B., Van Genugten, M., & Van Thiel, S. (2019). Multiple principals, multiple prob- mental Management, Journal of Cleaner Production, Journal of Retailing and Consumer
lems: Implications for effective governance and a research agenda for joint service Service, Business Research Quarterly, Managerial and Decision Economics, Electronic Com-
delivery. Public Administration, 97(3), 671–685. merce Research, and Telematics and Informatics. Publications are available at: http://
Vos, E., Yeh, A. J.-Y., Carter, S., & Tagg, S. (2007). The happy story of small business www.researchgate.net/profile/Taewoo-Roh.
financing. Journal of Banking & Finance, 31(9), 2648–2672.
Dr. Byung Il Park is a Professor in International Business at the College of Business,
Wales, W. J., Patel, P. C., Parida, V., & Kreiser, P. M. (2013). Nonlinear effects of entrepre-
Hankuk University of Foreign Studies (South Korea). His-research focuses on Asian
neurial orientation on small firm performance: The moderating role of resource
emerging-market MNCs, MNC strategy, and corporate social responsibility of MNCs
orchestration capabilities. Strategic Entrepreneurship Journal, 7(2), 93–121.
and MNC corruptions. He has published in such journals as the Journal of World Busi-
Ward, D., & Filatotchev, I. (2010). Principal−principal−agency relationships and the
ness, Journal of International Management, Management International Review, Interna-
role of external governance. Managerial and Decision Economics, 31(4), 249–261.
tional Business Review, International Marketing Review, Corporate Governance: An
Welch, C. L., & Welch, L. S. (2009). Re-internationalisation: Exploration and conceptual-
International Review, International Small Business Journal, and Asia Pacific Journal of
isation. International Business Review, 18(6), 567–577.
Management etc. In addition, has also handled various special issues, for example, for Jour-
White, S., Gao, J., & Zhang, W. (2005). Financing new ventures in China: System antece-
nal of World Business, International Marketing Review, Thunderbird International Business
dents and institutionalization. Research Policy, 34(6), 894–913.
Review, and European Journal of International Management.
Yanadori, Y., & Cui, V. (2013). Creating incentives for innovation? The relationship
between pay dispersion in R&D groups and firm innovation performance. Strategic
Dr. Shufeng (Simon) Xiao is currently an Associate Professor of International Business
Management Journal, 34(12), 1502–1511.
at the Division of Business Administration, Sookmyung Women’s University, Seoul,
Yayavaram, S., & Chen, W. R. (2015). Changes in firm knowledge couplings and firm
Korea. He is currently serving as Editor-in-Chief for International Journal of Multina-
innovation performance: The moderating role of technological complexity. Strate-
tional Corporation Strategy. His research interests center on emerging multinational
gic Management Journal, 36(3), 377–396.
enterprises, management of Chinese organizations, institutional theory in strategic
Yli-Renko, H., Autio, E., & Tontti, V. (2002). Social capital, knowledge, and the interna-
management, entrepreneurship and innovation, foreign subsidiary management in
tional growth of technology-based new firms. International Business Review, 11(3),
emerging markets, with a particular focus on China and India, digital transformation,
279–304.
and international business in the digital economy, with a focus on technology innova-
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate gov-
tion within and between platform ecosystems. His research has appeared in the Journal
ernance in emerging economies: A review of the principal−principal perspective.
of Business Research, Journal of International Management, International Business Review,
Journal of Management Studies, 45(1), 196–220.
Management International Review, International Journal of Human Resource Manage-
Zahra, S. A. (2005). A theory of international new ventures: A decade of research. Jour-
ment, Asian Business & Management, Business Research Quarterly, Thunderbird Interna-
nal of international Business studies, 36(1), 20–28.
tional Business Review, and other major journals.

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