Strategic versus Financial Investors: The Role of Strategic Objectives in Financial Contracting
AbstractStrategic 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.
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Bibliographic InfoPaper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-036/2.
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Corporate Venturing; Soft Budget Constraint;
Other versions of this item:
- Stefan Arping & Sonia Falconieri, 2010. "Strategic versus financial investors: the role of strategic objectives in financial contracting," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 691-714, October.
- G20 - Financial Economics - - Financial Institutions and Services - - - General
- 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
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-CTA-2009-07-03 (Contract Theory & Applications)
- NEP-ENT-2009-07-03 (Entrepreneurship)
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