Financial Transparency and Governance Mechanisms as Determinants of Growth in Early-Stage Venture Capital-Backed Firms
Keywords:
Financial Transparency, Governance Mechanisms, Venture Capital, Firm Growth, Moderation Effect, Corporate Governance, Early-Stage Firms.Abstract
This paper explores the relationship between financial transparency and Governance Mechanisms as determinants of growth in early-stage venture capital-backed corporations. It seeks to test the direct and the moderating impact of the governance structures on the relationship between transparency and firm growth. The quantitative, cross-sectional research design was chosen. The survey that was used to collect data was structured and covered early-stage venture capital-backed firms. Multi-item Likert scales were used to measure the constructs. The proposed hypotheses were tested using regression analysis and moderation analysis. The findings indicate that Financial Transparency has a significant effect on Firm Growth (β = 0.41, p < 0.001), and Governance Mechanisms also have a significant and positive effect on Firm Growth (β = 0.36, p = 0.001). Financial Transparency is also increased by the Governance Mechanisms (β = 0.45, p < 0.001). Moderation analysis supports the fact that Governance Mechanisms enhance the association between Financial Transparency and Firm Growth (β = 0.18, p = 0.022) and enrich the predictive power of the model by 51% (R² = 0.51). These results confirm the combined model and indicate the supplementary influence of governance and transparency in prompting the growth of firms. It is suggested in the study that firms at the initial stage are supposed to formalize the institutionalization of structured systems of governance with a quality of financial reporting practices to improve the growth results. Venture capital investors are further motivated to provide an active role in governance in order to achieve as much as possible performance returns through transparency. The study is an addition to the entrepreneurial finance and governance literature as it combines transparency and governance into a single empirical model and shows how they interact in terms of growth in venture capital-backed companies.
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