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Start-Up Finance, Monitoring, and Collusion

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Author Info

  • Roberta Dessï¾’

    ()
    (University of Toulouse, (IDEI and GREMAQ))

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    Abstract

    I examine optimal financial contracts between entrepreneurs, financial intermediaries (venture capitalists), and other investors that allocate both cash flow rights and control rights to (i) motivate the venture capitalist to efficiently monitor the entrepreneur, (ii) ensure that the efficient decision is made at the interim stage concerning project continuation and refinancing, and (iii) deter collusion between the entrepreneur and the venture capitalist at the expense of the other investors. The combination of asymmetric information at the interim stage with the possibility of collusion yields optimal (collusion-proof) contracts that are consistent with several commonly observed characteristics of venture capital financing.

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    Bibliographic Info

    Article provided by The RAND Corporation in its journal RAND Journal of Economics.

    Volume (Year): 36 (2005)
    Issue (Month): 2 (Summer)
    Pages: 255-274

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    Handle: RePEc:rje:randje:v:36:y:2005:2:p:255-274

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    Cited by:
    1. Caselli, Stefano & Garcia-Appendini, Emilia & Ippolito, Filippo, 2013. "Contracts and returns in private equity investments," Journal of Financial Intermediation, Elsevier, vol. 22(2), pages 201-217.
    2. Carsten Bienz & Uwe Walz, 2006. "Evolution of decision and control rights in venture capital contracts: an empirical analysis," LSE Research Online Documents on Economics 24637, London School of Economics and Political Science, LSE Library.
    3. Thierry Tressel & Thierry Verdier, 2007. "Financial Globalization and the Governance of Domestic Financial Intermediaries," IMF Working Papers 07/47, International Monetary Fund.

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