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The Exit Decision in the European Venture Capital Market

Author

Listed:
  • Elisabete Gomes Santana Felix

    (Universidade de Evora, Departamento de Gestao)

  • Cesaltina Pires

    (Universidade de Evora, Departamento de Gestao)

  • Mohamed Azzim Gulamhussenb

    (Instituto Superior de Ciencias do Trabalho e da Empresa, Departamento de Financas e Contabilidade)

Abstract

This article analyzes the exit decision in the European venture capital market, studying when to exit and how it interacts with the exit form. The paper emphasizes the impact of asymmetric information on the divestment decision. Our model considers the impact of caracteristics of the venture capital investor, characteristics of the investment and contracting variables on the exit decision. Our results show that venture capitalists associated with .financial institutions have quicker exits, a result which is stronger for trade-sales exits. In addition, our results highlight the importance of the contracting variables on the exit decision. An unexpected but interesting result is that the presence in the board of directors leads to longer investment duration.

Suggested Citation

  • Elisabete Gomes Santana Felix & Cesaltina Pires & Mohamed Azzim Gulamhussenb, 2008. "The Exit Decision in the European Venture Capital Market," CEFAGE-UE Working Papers 2008_01, University of Evora, CEFAGE-UE (Portugal).
    • Handle: RePEc:cfe:wpcefa:2008_01
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    References listed on IDEAS

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    1. Didier Cossin & Benoît Leleux & Entela Saliasi, 2002. "Understanding the Economic Value of Legal Covenants in Investment Contracts: A Real-Options Approach to Venture Equity Contracts," Swiss Finance Institute Research Paper Series rp63, Swiss Finance Institute.
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    Cited by:

    1. Bing Guo & Yun Lou & David Pérez‐Castrillo, 2015. "Investment, Duration, and Exit Strategies for Corporate and Independent Venture Capital‐Backed Start‐Ups," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 24(2), pages 415-455, June.
    2. Julian Kaboth & Arnd Lodowicks & Maximilian Schreiter & Bernhard Schwetzler, 2023. "Same same but different: how preferential claims trigger valuation discounts in equity tranches of VC-backed firms," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 877-914, April.
    3. Yanzhao Li & Ju-e Guo & Shaolong Sun & Yongwu Li, 2022. "How time-inconsistent preferences influence venture capital exit decisions? A new perspective for grandstanding," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-24, December.

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    More about this item

    Keywords

    Asymmetric information; venture capital; trade sales; IPO; write-offs; exit decision; competing risks model;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law

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