Robust Financial Contracting and the Role of Venture Capitalists
Abstract
We derive a role for inside investors, such as venture capitalists, in resolving various agency problems that arise in a multistage financial contracting problem. Absent an inside investor, the choice of securities is unlikely to reveal all private information, and overinvestment may occur. An inside investor, however, always makes optimal investment decisions if and only if he holds a fixed‐fraction contract, where he always receives a fixed...
Paper Details
Title
Robust Financial Contracting and the Role of Venture Capitalists
Published Date
Jun 1, 1994
Journal
Volume
49
Issue
2
Pages
371 - 402
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