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Passau start-up study: Unequal ownership distribution in the founding team leads to more innovation

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From the very beginning, founders should think about how to distribute ownership shares in their company among themselves. Researchers from the University of Passau, the ZEW – Leibniz Center for European Economic Research in Mannheim and the IÉSEG School of Management in Paris have found that teams are more innovative when ownership is unevenly distributed.

“We know that founders have a special ability to create something new,” says Prof. Dr. Carolin Häussler, professor of business administration specializing in organization, technology management and entrepreneurship at the University of Passau. “However, business decisions are not made by one person, but by a team of founders. How the ownership stakes are divided in the founding team plays a crucial role in the decision-making process.”

in the studio”The influence of ownership distribution of entrepreneurial teams and recombinant noveltyThe research team concludes that development teams are most innovative when company founders co-invent, which is when the founding member with the highest ownership stake is also involved in R&D. “Our empirical analyzes indicate that both the unequal distribution of ownership shares and the direct participation of founders in development teams are associated with increased innovation,” says Laura Körner, PhD candidate and employee at the Professor Dr. Haussler chair.

Particularly innovative are companies in which the research-active founders hold the largest share of ownership. Because these people have the power to decide experimental strategies and how to deal with setbacks. “The higher the ownership stake of a founder, the better this person can make decisions in situations where the potential for value creation is very uncertain,” explains Professor Dr. Patrizio Figgi.

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The research team presented the results in a video in August 2020 at the conference of the “Academy of Management”, which took place practically this year due to corona. In the video, the researchers presented themselves to an international audience in the field of management research against the backdrop of Passau's old town. The Academy of Management is one of the most renowned associations in this field.

The study was carried out as part of the project 'Entrepreneur originality along the business lifecycle: Understanding the attributes of entrepreneurial decision-making' at the University of Passau, which the German Research Foundation (DFG) is already funding in the second phase. The research team evaluated data from more than 2,000 German start-ups with a view to distributing ownership shares. The research team compared this data with patent data to identify if and how the founders were involved in the company's inventions.

Previous study video award

In an earlier study, published in the respected Strategic Entrepreneurship Journal, the team denied that founders should absolutely hand over running the business to a professional management team once it reaches a certain size. Researchers from Passau have found that research-active founders may very well continue to create value in the company. The team also presented these results in the form of an abstract video. The renowned Strategic Management Society awarded the video “Best Video Abstract 2019”.

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