The psychological ownership of entrepreneurial organizations: theoretical and model development

ABSTRACT In entrepreneurship theory, ownership is most often associated with the amount of equity controlled by an individual entrepreneur. However, several scholars acknowledge that feelings of ownership often exist in the absence of objective control. As such, we explore emerging literature on psychological ownership to provide a theoretical basis for explaining how the psychological state of ownership can persist apart from the amount of equity an entrepreneur controls. Specifically, we show how key determinants of psychological ownership interact and relate to specific entrepreneurship processes, develop a theoretical model, and examine the contribution of this work back to the psychological ownership literature. Several empirical implications of our model and directions for future research are discussed as well. INTRODUCTION Prior studies on entrepreneurial ownership have generally considered ownership to be an equity-based notion referring to the percentage of equity a given stakeholder has in the firm. Several theoretical perspectives have been used to facilitate our understanding of the entrepreneurial process from an equity-based perspective. For example, agency theory (Jensen & Meckling, 1976) has been used to address the misalignment between entrepreneurs and hired managers. This perspective suggests that the best way to resolve the agency problem is to optimize both the compensation contract and the agent’s equity ownership (Audretsch, Lehmann, & Plummer, 2009). Transaction cost economics scholars focus on the efficient governance between the founder and other partners or stakeholders. Several scholars (e.g. Katila, Rosenberger & Eisenhardt, 2008) have examined this decision when the firm seeks capital; thereby entering into an equity relationship with either an equity investor or an acquiring firm. However, both of these perspectives focus solely on equity ownership without consideration to other avenues of ownership even though many scholars have noted that founders of firms often have a strong psychological tie to the venture in which they have created (Cardon, Zietsma, Saparito, Matherne, & Davis, 2005). In order to better examine entrepreneurial ownership we use the emerging literature on psychological ownership to explain how ownership can exist apart from the equity controlled. We contribute not only to the entrepreneurship literature, but also back to the psychological ownership perspective because we propose that the causal determinants of psychological ownership (control, intimate knowledge, and self-investment) are complementary rather than additive. This has important implications because the synergistic effect between any two factors may result in high 1Townsend et al.: PSYCHOLOGICAL OWNERSHIP OF ENTREPRENEURIAL ORGANIZATIONSFrontiers of Entrepreneurship Research 2009