Chapter 12: Accounting information system development and the supply of venture capital*
Page 263 12. Accounting information system development and the supply of venture capital* Falconer Mitchell, Gavin Reid and Nicholas Terry Introduction One of the most important events in the early life cycle of any entrepreneurial firm which harbours serious growth ambitions is the infusion of external capital (Reid, 1996). This event can lead to significant changes in the firm’s ownership composition, and affects its subsequent rate of growth and, consequently, its size and organisational structure. It is within the context of such changes that the managerial demand for information about the firm is stimulated. This study examines the origins and characteristics of developments in the accounting information systems (AIS) of firms which are going through this stage. It does so by investigating the consequences of venture capital1 intervention for the entrepreneurial firm, particularly as regards the characteristics of its accounting information system. The significance of positive increments in the firm’s supply of external capital for the development of its accounting system depends on characteristics of the evolving circumstances which confront both the owners and managers of the firm. The venture capital investors (VCIs) have put their invested funds at risk, but both at the time of negotiating the subscription agreement,2 and also subsequently through their ownership stake, they can take steps to ‘manage’ their risk by making direct and effective demands on the investee for regular information. This can be seen as an attempt to improve contractual efficiency between the investee and investor. Recent studies have shown that VCIs...
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