Study On The Effects Of Venture Capital On The Relationship Between Organizational Redundancy And Corporate Performance

Since the concept of organizational slack is raised, controversy surrounds it and the consensus has not been achieved. Especially the effect of organizational slack on firm performance is ambiguous. About the organization slack, organizational theory holds the point of supporting, but the agency theory hold the view of denying. While there have been many empirical studies on the relationship between organizational slack and performance, scholars get different conclusions from different data. In the light of these conflicting claims, contextual analysis has been a new research trend in the study on the relationship between organizational slack and firm performance. From the perspective of VCs’ assistance and Supervision functions for invested firms, this paper analyzes the relationship between organizational slack and firm performance and the role of venture capital in this relationship.Based on the IPO companies that were listed in Shenzhen small & middle-sized enterprise board and growth enterprise board during 2010-2012, this paper analyzes the role of venture capital in the relationship between entrepreneurial enterprise organizational slack and firm performance by applying correlation analysis, multiple regression analysis, and Heckman two-step estimation. The result finds that the inverse U-shaped curves is able to describe the slack–performance relationship in entrepreneurial enterprise, and the presence of VC investors negatively moderates this relationship. Further tests show that the inverse U-shaped relationship between organizational slack and firm performance is more weakening in VC-backed firms when investors hold high ownership stakes, or have long investment horizon. However, the same situation doesn’t happen with large numbers of VCs investing in the same company.Our study enriches the literature on contextual analysis on the slack–performance relationship, and contributes to deepen the understanding of VCs’ assistance and oversight roles for invested firms. At the same time, the results provide supports for SMEs and entrepreneurial firms, VCs, and the government to make their decisions.