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Strategic versus financial investors: the role of strategic objectives in financial contracting

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  • Stefan Arping
  • Sonia Falconieri

Abstract

Strategic investors, such as corporate venture capitalists, engage in the financing of start-up firms to complement their core businesses and to facilitate the internalization of externalities. We argue that while strategic objectives make it more worthwhile for an investor to elicit high entrepreneurial effort, they can also undermine his commitment to penalize poorly performing entrepreneurs by terminating their projects. Based on this tradeoff we develop a theory of financing choice between strategic and financial investors. Our framework provides insights into the design of corporate venturing deals and the choice between corporate venturing and independent venture capital finance. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpp038
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Bibliographic Info

Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 62 (2010)
Issue (Month): 4 (October)
Pages: 691-714

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Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:691-714

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  1. Repullo, R. & Suarez, J., 1996. "Monitoring, Liquidation, and Security Design," Papers 273, Banca Italia - Servizio di Studi.
  2. Riyanto, Yohanes E. & Schwienbacher, Armin, 2006. "The strategic use of corporate venture financing for securing demand," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2809-2833, October.
  3. Mathias Dewatripont & Jean Tirole, 1994. "A theory of debt and equity: diversity of securities and manager-shareholder congruence," ULB Institutional Repository 2013/9593, ULB -- Universite Libre de Bruxelles.
  4. Paul Gompers & Josh Lerner, 2000. "The Determinants of Corporate Venture Capital Success: Organizational Structure, Incentives, and Complementarities," NBER Chapters, in: Concentrated Corporate Ownership, pages 17-54 National Bureau of Economic Research, Inc.
  5. De Bettignies, Jean-Etienne & Chemla, Gilles, 2008. "Corporate Venturing, allocation of talent, and competition for star managers," Economics Papers from University Paris Dauphine 123456789/985, Paris Dauphine University.
  6. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, vol. 64(2), pages 285-314, May.
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Cited by:
  1. Dominique Dufour & Eric Nasica & Dominique Torre, 2014. "Rendements financiers versus rendements stratégiques : une comparaison des stratégies de syndication des capital-risqueurs captifs et indépendants," Working Papers halshs-00924748, HAL.
  2. Julia Hirsch & Uwe Walz, 2013. "Why do contracts differ between venture capital types?," Small Business Economics, Springer, vol. 40(3), pages 511-525, April.
  3. Dominique Dufour & Eric Nasica & Dominique Torre, 2013. "Syndication in private equity industry: comparing the strategies of independent and captive venture capitalists," Working Papers halshs-00853695, HAL.

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