This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Market Coditions and Venture Capitalist Experience in Start-Up Financing

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Koskinen, Yrjo () (Boston University School of Management and CEPR)
Rebello, Michael J. (Tulane University)
Wang, Jun () (Baruch College)

Additional information is available for the following registered author(s):

Abstract

We examine how the relative bargaining power of privately informed venture capitalists and entrepreneurs - determined either by market conditions or by prior experience - affects both the willingness of venture capitalists to invest and the terms of their financing contracts. Our results demonstrate that shifts in the venture capitalists' bargaining power have a profound influence both on the terms of contracts and on investments in venture-backed projects. As witnessed in the recent past, when the bargaining advantage lies with entrepreneurs, venture capitalists may acquiesce to both investing in negative NPV projects and excessive investments in early stages of projects. Further, they will subsequently terminate poor projects. An improvement in the bargaining position of venture capitalists increases the payoff sensitivity of their financing contracts. It also completely attenuates their incentive to overinvest, limiting the need for excessive project terminations arter the initial round of financing.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. 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://www.sifr.org/PDFs/sifr-wp45.pdf
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Institute for Financial Research in its series SIFR Research Report Series with number 45.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 52 pages
Date of creation: 15 Sep 2006
Date of revision:
Handle: RePEc:hhs:sifrwp:0045

Contact details of provider:
Postal: Institute for Financial Research Drottninggatan 89, SE-113 60 Stockholm, Sweden
Phone: +46-8-728-5120
Fax: +46-8-728-5130
Email:
Web page: http://www.sifr.org/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Anki Helmer).

Related research
Keywords: Venture capital; asymmetric information; bargaining power; financial contracting; investment distortions;

Other versions of this item:

Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

This paper has been announced in the following NEP Reports:

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.:
  1. Klaus M. Schmidt, 2003. "Convertible Securities and Venture Capital Finance," Journal of Finance, American Finance Association, vol. 58(3), pages 1139-1166, 06. [Downloadable!] (restricted)
    Other versions:
  2. Steven Kaplan & Antoinette Schoar, 2003. "Private Equity Performance: Returns, Persistence and Capital," NBER Working Papers 9807, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Yael V. Hochberg & Alexander Ljungqvist & Yang Lu, 2007. "Whom You Know Matters: Venture Capital Networks and Investment Performance," Journal of Finance, American Finance Association, vol. 62(1), pages 251-301, 02. [Downloadable!] (restricted)
  4. Megginson, William L & Weiss, Kathleen A, 1991. " Venture Capitalist Certification in Initial Public Offerings," Journal of Finance, American Finance Association, vol. 46(3), pages 879-903, July. [Downloadable!] (restricted)
  5. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management. [Downloadable!]
  6. Nachman, David C & Noe, Thomas H, 1994. "Optimal Design of Securities under Asymmetric Information," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(1), pages 1-44. [Downloadable!] (restricted)
  7. Kaplan, Steven & Strömberg, Per Johan, 2002. "Characteristics, Contracts and Actions: Evidence from Venture Capitalist Analyses," CEPR Discussion Papers 3243, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  8. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Lerner, Josh, 1995. " Venture Capitalists and the Oversight of Private Firms," Journal of Finance, American Finance Association, vol. 50(1), pages 301-18, March. [Downloadable!] (restricted)
  10. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June. [Downloadable!] (restricted)
  11. Francesca Cornelli & Oved Yosha, 2003. "Stage Financing and the Role of Convertible Securities," Review of Economic Studies, Blackwell Publishing, vol. 70(1), pages 1-32, January.
  12. David H. Hsu, 2004. "What Do Entrepreneurs Pay for Venture Capital Affiliation?," Journal of Finance, American Finance Association, vol. 59(4), pages 1805-1844, 08. [Downloadable!] (restricted)
  13. Steven N. Kaplan & Per Stromberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Blackwell Publishing, vol. 70(2), pages 281-315, 04. [Downloadable!] (restricted)
    Other versions:
  14. Inderst, Roman & Muller, Holger M., 2004. "The effect of capital market characteristics on the value of start-up firms," Journal of Financial Economics, Elsevier, vol. 72(2), pages 319-356, May. [Downloadable!] (restricted)
  15. Trester, Jeffrey J., 1998. "Venture capital contracting under asymmetric information," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 675-699, August. [Downloadable!] (restricted)
  16. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May. [Downloadable!] (restricted)
  17. Ueda, Masako, 2002. "Banks versus Venture Capital," CEPR Discussion Papers 3411, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  18. John G. Riley, 2001. "Silver Signals: Twenty-Five Years of Screening and Signaling," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 432-478, June. [Downloadable!] (restricted)
  19. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June. [Downloadable!] (restricted)
  20. Rafael Repullo & Javier Suarez, 2004. "Venture Capital Finance: A Security Design Approach," Review of Finance, Springer, vol. 8(1), pages 75-108. [Downloadable!]
    Other versions:
  21. Wouter Dessein, 2005. "Information and Control in Ventures and Alliances," Journal of Finance, American Finance Association, vol. 60(5), pages 2513-2549, October. [Downloadable!] (restricted)
  22. Hellmann, Thomas & Puri, Manju, 2000. "The Interaction between Product Market and Financing Strategy: The Role of Venture Capital," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 13(4), pages 959-84.
  23. Manove, Michael & Padilla, A Jorge & Pagano, Marco, 2001. "Collateral versus Project Screening: A Model of Lazy Banks," RAND Journal of Economics, The RAND Corporation, vol. 32(4), pages 726-44, Winter.
  24. Roman Inderst & Holger M. Mueller, 2006. "Informed Lending and Security Design," Journal of Finance, American Finance Association, vol. 61(5), pages 2137-2162, October. [Downloadable!] (restricted)
  25. Admati, Anat R & Pfleiderer, Paul, 1994. " Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, vol. 49(2), pages 371-402, June. [Downloadable!] (restricted)
  26. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, vol. 27(2), pages 473-521, October. [Downloadable!] (restricted)
Full references

Statistics
Access and download statistics

Did you know? IDEAS uses the data collected within the RePEc project, the largest online bibliographic database in Economics.

This page was last updated on 2009-11-22.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.