Former entrepreneur outside directors: the impact on monitoring and advising performance.

In this proposal, we explore specific situations in which former entrepreneurs serve as outside directors for firms. We refer to these individuals as “former entrepreneur–outside directors” (FEODs). Although few recent studies have introduced
the FEODs, and their impacts, however, we propose a more holistic theoretical approach by juxtaposing the corporate governance literature with a more elaborate empirical approach. We initiate the impact of FEODs from two theoretical perspectives: FEODs’ monitoring and advising roles. From the monitoring perspective, we first consider the agency problem and test the puzzling question of whether former non-agent directors are more or less likely to be sensitive to the agency problem. We specifically analyze how FEODs shape the compensation scheme for their CEOs. To better understand these arguments, we propose that the characteristics of the firms (e.g., public status, performance, size) established by the former entrepreneurs and their achievements (e.g., sole founder, serial entrepreneur) affect the proposed relationship. From the advising perspective, we also propose that the expertise and industry knowledge of FEODs
facilitate firms’ decisions regarding active investment policies or over-investment (e.g., expenditure, acquisition investment). We also examine that their impact on the investment policies is also depending upon the former entrepreneur’s prior achievement. We believe that our proposed arguments shed brighter light on the literature of both entrepreneurship and corporate governance. By focusing on the fact that entrepreneurial traits are persistent, and the fact that every entrepreneur owns idiosyncratic entrepreneurial achievement, we hope that this research will be one of pioneer studies in examining the underexplored effects of FEODs, and new features of entrepreneurship.