The placement of nominee director as a controlling mechanism in venture capital investment

• Main Author: Hisham, Mohammad
• Format: Thesis
• Language: English; English
• Published: 2014
• Subjects: HG Finance
• Online Access: https://etd.uum.edu.my/4522/1/s92938.pdf; https://etd.uum.edu.my/4522/7/s92938_abstract.pdf; https://etd.uum.edu.my/4522/

Within the context of venture capital financing, the high level of investment risk combined with the absence of collateral have forced many venture capitalists to perform a strict evaluation process in establishing the requirement for full information disclosure and implementing continuous monitoring on their investee firms. However, the absence of representatives from the venture capital company on the investee firm's board of directors has been cited to significantly impact venture capitalist endeavors to protect their investment interests. Venture capitalists have claimed that this absence has exposed their business to the possibility of having agency problem and triggered management conflicts with their investee firms. Hypothesizing that a nominee director may affect the venture relationship between venture capitalists and their investee firms, this study utilizes a cross-sectional survey research design. The questionnaires were distributed to all identified Malaysian venture capital companies through the mailing procedure. Of the 44 surveys distributed, a total of 35 sets was returned, generating a response rate of 79.55%. The main test results revealed an unexpected finding because the presence of a nominee director insignificantly influenced the venture relationship between the venture capitalists and their investees. Further results showed that the controlling mechanism through the placement of a nominee director failed to moderate the influence of managerial factors, namely Deal Origination and Screening, Evaluating Venture Proposal, Contracting and Deal Structuring, Monitoring and Post Investment Activities and Risk Management with respect to management conflicts. The results prove that the placement of nominee director in Malaysia did not serve as a moderating factor between venture capitalists and their investee firms. Further study should concentrate on other controlling factors and examine whether they could reduce the possibility of conflict occurrence in venture cooperation.