Seminar (Dept. of General Management)

Title: The External Implications of Organizational Design: How Formalization and Decentralization Affect External Equity Investment in New Ventures

Speaker: Wei Yang (China Europe International Business School)

Time: 10:00am, Jun 20th (Tuesday), 2023

Venue: Room706, Mingde Business Building

Language: Chinese/English

ABSTRACT:

This study investigates how two critical dimensions of organizational design, formalization and decentralization, influence external equity investment in new ventures. Drawing from literatures on organizational design and entrepreneurial financing, we argue that formalization increases external investment because it enables effective communication of resource needs and coveys efficiencies of resource allocation. Meanwhile, decentralization increases external investment as it increases investors’ perceived control of a venture. We also argue that decentralization and formalization exert an interdependent influence, such that decentralization weakens the positive effect of formalization on external equity investment. Our hypotheses are confirmed using longitudinal data of 2,604 U.S. ventures from the Kauffman Firm Survey. Our study contributes to the literature on organizational design by exploring the external implications of new venture formalization and decentralization process.