Bienz, Carsten and Hirsch, Julia
The dynamics of venture capital contracts.
Financial Markets Group, London School of Economics and Political Science, London, UK.
We analyze the degree of contract completeness with respect to staging of venture capital investments using a hand-collected German data set of contract data from 464 rounds into 290 entrepreneurial firms. We distinguish three forms of staging (pure milestone financing, pure round financing and mixes). Thereby, contract completeness reduces when going from pure milestone financing via mixes to pure round financing. We show that the decision for a specific form of staging is determined by the expected distribution of bargaining power between the contracting parties when new funding becomes necessary and the predictability of the development process. To be more precise, parties choose the more complete contracts the lower the entrepreneur’s expected bargaining power - the maximum level depending on the predictability of the development process.
||© 2005 The Authors
||Venture capital, Corporate governance, Moral hazard, Renegotiation, Contract theory, Empirical contract theory, Contract econometrics
|Library of Congress subject classification:
||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Journal of Economic Literature Classification System:
||D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D86 - Economics of Contract: Theory
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies
G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
||30 Jul 2009 13:43
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