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Venture Capital Financing of Entrepreneurship: Theory, Empirical Evidence and a Research Agenda

Published on Oct 23, 2017
· DOI :10.1002/9781405164214.ch13
Raphael Amit38
Estimated H-index: 38
(UBC: University of British Columbia),
James A. Brander38
Estimated H-index: 38
(UBC: University of British Columbia),
Christoph Zott15
Estimated H-index: 15
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Abstract
A bathing enclosure comprises a base section and two wall sections. The wall sections are mounted on the base section and are joined by a complimentary tongue and groove. The tongue and groove form a vertical seam which is water-tight, eliminating the need for sealing material. The two-piece wall design provides ease in installation and allows access to areas behind the wall sections it desired or necessary.
  • References (32)
  • Citations (20)
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References32
Newest
#1Paul A. Gompers (Harvard University)H-Index: 42
#2Joshua Lerner (Harvard University)H-Index: 77
Venture capital distributions, a legal form of insider trading, provides an ideal arena for examining the share price impact of transactions by informed parties. These sales, which occur after substantial run-ups in share value, generate a substantial price reaction immediately around the event. In the months after distribution, returns apparently continue to be negative. When the short- and long-run reactions are decomposed, they are consistent with the view that venture capitalists use inside ...
185 CitationsSource
#1Raphael Amit (UBC: University of British Columbia)H-Index: 38
#2James A. Brander (UBC: University of British Columbia)H-Index: 38
Last. Christoph Zott (UBC: University of British Columbia)H-Index: 2
view all 3 authors...
EXECUTIVE SUMMARY This paper investigates the role of venture capitalists. We view their "raison d'etre" as their ability to reduce the cost of informational asymmetries. Our theoretical framework focuses on two major forms of asymmetric informa- tion: "hidden information" (leading to adverse selection) and "hidden ac- tion" (leading to moral hazard). Our theoretical analysis suggests four em- pirical predictions. 1. Venture capitalists operate in environments where their relative efficiency in ...
485 CitationsSource
#1Dirk Bergemann (Yale University)H-Index: 27
#2Ulrich Hege (Tilburg University)H-Index: 14
We consider the provision of venture capital in a dynamic agency model. The value of the venture project is initially uncertain and more information arrives by developing the project. The allocation of the funds and the learning process are subject to moral hazard. The optimal contract is a time-varying share contract which provides intertemporal risk-sharing between venture capitalist and entrepreneur. The share of the entrepreneur reflects the value of a real option. The option itself is based...
490 CitationsSource
#1Jeffrey J. Trester (UPenn: University of Pennsylvania)H-Index: 5
The author develops a model of venture capital contracting in which the entrepreneur and venture capitalist contract under symmetric information. A condition of asymmetric information may arise subsequent to the first contract. The author shows that this condition makes debt contracts infeasible and leads to the use of preferred equity contracts. The author notes that discussions of the relation between venture capital and capital structure are rare. This paper expands the literature by addressi...
159 CitationsSource
Venture capitalists often hold extensive control rights over entrepreneurial companies, including the right to fire entrepreneurs. This article examines why, and under what circumstances, entrepreneurs would voluntarily relinquish control. Control rights protect the venture capitalists from hold-up by the entrepreneurs. This provides the correct incentives for the venture capitalists to search for a superior management team. Wealth-constrained entrepreneurs may give up control even if the change...
526 CitationsSource
Abstract This research analyzes the venture capitalist's incentives to maximize the profits of the entrepreneurs of ventures and the limited partners of a venture fund. Venture capital is a professionally managed pool of capital invested in equity-linked private ventures. Entrepreneurs turn to venture capitalists for financing because high-technology startup firms have low or negative cash flows, which prevent them from borrowing or issuing equity. In addition, venture capitalists are actively i...
139 CitationsSource
This paper examines the structure of staged venture capital investments when agency and monitoring costs exist. Expected agency costs increase as assets become less tangible, growth options increase, and asset specificity rises. Data from a random sample of 794 venture-capital-backed firms support the predictions. Venture capitalists concentrate investments in early stage and high technology companies where informational asymmetries are highest. Decreases in industry ratios of tangible assets to...
1,450 CitationsSource
#1Lloyd P. Steier (U of A: University of Alberta)H-Index: 27
#2Royston Greenwood (U of A: University of Alberta)H-Index: 44
Entrepreneurs often turn to outsiders for financial assistance. Venture capitalists represent an outside source of finance that generally takes an active interest in managing the firm. Two common practices within the venture capital industry are co-investing and staged financing. Responding to the call for more process research which examines the deal structuring and post-investment stages of venture capital involvement, this research utilized a case study approach to explore salient features an...
145 CitationsSource
#1Anat R. Admati (Stanford University)H-Index: 22
#2P. Pßeiderer (Stanford University)H-Index: 21
The authors 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 fraction of the project's payoff and finances...
551 CitationsSource
This paper examines the timing of initial public offerings and private financings by venture capitalists. Using a sample of 350 privately held venture-backed biotechnology firms between 1978 and 1992, I show that these companies go public when equity valuations are high and employ private financings when values are lower. Seasoned venture capitalists appear to be particularly proficient at taking companies public near market peaks. The results are robust to a variety of controls and alternative ...
696 CitationsSource
Cited By20
Newest
#1Tahereh Sadeghloo (FUM: Ferdowsi University of Mashhad)
#2Hamdollah Sojasi Qeidari (FUM: Ferdowsi University of Mashhad)
Last. Amin Faal jalali (FUM: Ferdowsi University of Mashhad)
view all 4 authors...
Purpose The aim of the current study is to investigate the public and private financing obstacles to medium and small-scale entrepreneurs in rural areas in Iran. Design/methodology/approach Descriptive-analytic research method is used for collecting field data among 5770 owners of entrepreneurial businesses located in rural areas of Mashhad in 2015. Findings The results showed that there are numerous public and private obstacles in rural entrepreneurship financing in Iran, which are the main fac...
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