Entrepreneurial management equity allocation and financing structure optimization of technology-based entrepreneurial firm

Purpose To satisfy the demand of initial investor for above-average capital return and the expectation of entrepreneurial management to establish their own business, this paper aims to explore a dynamic equity allocation model in which the shareholding ratio of the technology-based entrepreneurial firm changes with its growth and profit. Based on the dynamic equity allocation model, the authors design a financing structure which not only ensures timely and adequately obtaining the fund but also avoids equity dilution and safeguards the integrity of equity. Design/methodology/approach The paper selects high-tech companies listed in China as the sample for empirical research to identify the role of stock incentive and uses model deduction to find the equitable quantized benchmark for entrepreneurial management equity allocation. The study uses capital exclusivity as an entry point to perform theoretical analysis and demonstrates how the equity allocation of a technology-based entrepreneurial firm changes dynamically as the presentation speed of entrepreneurial management’s human capital exclusivity accelerates. The paper then constructs a conceptual model to design the financing structure of the technology-based entrepreneurial firm. Findings The study finds that stock incentive upwardly regulates debt financing and downwardly regulates equity financing. Based on characteristics of technology-based entrepreneurial firms, the paper suggests that the immediate surplus capital increment can signify the increasing presentation speed of human capital exclusivity, and it is proposed as an equitable quantized benchmark for equity allocation to entrepreneurial management. Based on the dynamic equity allocation model, the paper designs an internal equity and external debt financing structure. Originality/Value The conclusions enrich the theoretical foundation for entrepreneurial management to participate in residual claim and provide practical guidance for equity allocation and financing structure design in the context of mass entrepreneurship and innovation. The paper also sets up a conceptual framework for solving two major issues of the technology-based entrepreneurial firm: timely acquisition of external funding and lasting maintenance of entrepreneurial management stability.

Stock incentive plans in Europe: Empirical evidence and design implications

Traditionally, stock incentive plans have been used by American companies for two primary purposes: as tools of corporate governance to align the interests of top managers and shareholders, and to motivate managers to maximize shareholders’ value. Recently, just as the misuse of stock option plans is the subject of scathing criticism, such plans are seeing widespread dissemination in several European countries. Empirical studies conducted by both consulting companies and management scholars outline the increasing diffusion of stock incentive plans designed by European companies and the main features of these plans. The characteristics of the process through which they are designed and of the equity incentives implemented raise the concerns of investors and academics about the ability of such plans to align managers’ interests to shareholders’. Since stock incentive plans were created and developed in the Anglo-Saxon capitalistic system, the last part of the paper reviews the reasons why firms should set up these plans. The aim is to ascertain whether European companies have good reasons to create SIPs and if the features of the incentive plans designed by these executives are consistent with achieving these goals. To answer these questions, a theoretical model is presented to provide a framework for designing stock incentive plans that are tailored to the characteristics of the company, specific aims it wishes to pursue, and the relative institutional environment.