Advanced Search
MyIDEAS: Login

The application of principal-agent methods to investor-investee relations in the UK venture capital industry

Contents:

Author Info

  • Gavin C. Reid

Abstract

This paper appeals to UK evidence on venture capital. The investor is regarded as the principal, and the investee as the agent. Relations between the two are analysed in terms of risk management, information handling, and the trading of risk and information. In the data analysed, investors and investees are paired in 'dyads'. The evidence on their behaviour and interaction was obtained by face-to-face interviews. A principal-agent model is developed to deal with incentives for entrepreneurial effort. From this, issues of information and monitoring naturally arise. Then the seeking of contract optimality in real contexts is examined, applying this framework to qualitative data. It is argued that evidence viewed in this way supports the application of principal-agent modelling to the financing of mature small firms by venture capitalists. The feature of contract optimality that was perceived to be most important was capital structure. There were several reasons for this: establishing ownership entitlement; creating incentives for effort; and apportioning risk efficiently. Often the observed relations between investor and investee were perceived to be at or close to optimality. It was found that these optima were specific to time and place, and strongly reflected the house-styles of individual investors and their reputations.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1080/136910699295820
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Venture Capital.

Volume (Year): 1 (1999)
Issue (Month): 4 (October)
Pages: 285-302

as in new window
Handle: RePEc:taf:veecee:v:1:y:1999:i:4:p:285-302

Contact details of provider:
Web page: http://www.tandfonline.com/TVEC20

Order Information:
Web: http://www.tandfonline.com/pricing/journal/TVEC20

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Gavin C Reid & Julia A Smith, 1996. "What Makes a New Business Start-Up Successful?," CRIEFF Discussion Papers 9618, Centre for Research into Industry, Enterprise, Finance and the Firm.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Fathi Fakhfakh & Felix FitzRoy, 2002. "Basic Wages and Firm Characteristics: Rent-sharing in Frensh Manufacturing," CRIEFF Discussion Papers 0203, Centre for Research into Industry, Enterprise, Finance and the Firm.
  2. Edmund H. Mantell, 2008. "A Probabilistic Theory Of Entrepreneurial Financing," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 177-197, May.
  3. Gavin C. Reid & Julia A. Smith, 2003. "Venture Capital and Risk in High-Technology Enterprises," International Journal of Business and Economics, College of Business, and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 2(3), pages 227-244, December.
  4. Gavin C Reid & Julia A Smith, 1999. "Accounting for Risk: developing a new research agenda for risk appraisal in high-technology ventures," CRIEFF Discussion Papers 9915, Centre for Research into Industry, Enterprise, Finance and the Firm.
  5. Gavin C. Reid, 2002. "Investor Conduct Towards New High Technology Firms: UK Evidence on How Risk is Managed," CRIEFF Discussion Papers 0206, Centre for Research into Industry, Enterprise, Finance and the Firm.
  6. Gavin C. Reid & Julia A. Smith, 2001. "How do Venture Capitalists Handle Risk in High-Technology Ventures? - some preliminary results," CRIEFF Discussion Papers 0107, Centre for Research into Industry, Enterprise, Finance and the Firm.
  7. Gavin C. Reid & Julia A. Smith, 2002. "Investor and Investee Conduct in the Risk Appraisal of High Technology New Ventures in the UK," CRIEFF Discussion Papers 0205, Centre for Research into Industry, Enterprise, Finance and the Firm.
  8. José Martí Pellón & Marina Balboa, 2003. "Characterisation Of The Reputation Of Private Equity Managers: Evidence In Spain," Working Papers. Serie EC 2003-16, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Wolf, Björn, 2006. "Empirische Untersuchung zu den Einflussfaktoren der Finanzierungsprobleme junger Unternehmen in Deutschland und deren Auswirkungen auf die Wirtschaftspolitik," Working Papers "Firms and Region" U1/2006, Fraunhofer Institute for Systems and Innovation Research (ISI).
  10. Jesper Lindgaard Christensen, 2008. "The IPR System, Venture Capital and Capital Markets – Contributions and Distortions of Small Firm Innovation?," DRUID Working Papers 08-03, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  11. Hanna Silvola, 2008. "Design of MACS in growth and revival stages of the organizational life-cycle," Qualitative Research in Accounting & Management, Emerald Group Publishing, vol. 5(1), pages 27-47, April.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:taf:veecee:v:1:y:1999:i:4:p:285-302. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.