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Investor–Venture Capitalist Relationship: Asymmetric Information, Uncertainty, And Monitoring

In: Risk Management And Value Valuation and Asset Pricing

Author

Listed:
  • Mondher Cherif

    (Université de Reims – LAME, France)

  • Skander Sraieb

    (Université de Reims – LAME, France)

Abstract

In an environment characterized by uncertainty and moral hazard, the chapter studies the role and impact of monitoring on the performance of an investor–venture capitalist relationship. Monitoring (ensured by funds of funds in our model) allows minimization of uncertainty concerning the GP behavior and reduces the risk. The impact of monitoring on both the level of effort provided by the GP and the expected return of LP is determined by mean of modeling the expected return of LP and GP. Our main finding concerns the role of monitoring as a mechanism that allows maximization of the investor's return and limits the opportunistic behavior of the venture capitalist by providing him with incentives to raise his effort level.

Suggested Citation

  • Mondher Cherif & Skander Sraieb, 2008. "Investor–Venture Capitalist Relationship: Asymmetric Information, Uncertainty, And Monitoring," World Scientific Book Chapters, in: Mondher Bellalah & Jean-Luc Prigent & Jean-Michel Sahut & Georges Pariente & Olivier Levyne & Michel (ed.), Risk Management And Value Valuation and Asset Pricing, chapter 17, pages 463-476, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9789812770745_0017
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    Keywords

    Risk; Value; Management; Derivatives;
    All these keywords.

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