Comparative Advantages of Public Loan and Public Equity Schemes in Venture Capital Markets
AbstractUsing an agency framework, this paper examines advantages of offering venture capitalists a choice between public equity and loan schemes. Both schemes can be used to promote venture capital investments in hightechnology enterprises since they encourage inexperienced venture capitalists to accumulate experience. However, under both schemes, experienced venture capitalists save on management support. This paper shows that offering venture capitalists a choice between these two schemes can lead to a positive self-selection. Inexperienced venture capitalists choose public equity under which they have higher incentives to enter the market. Experienced venture capitalists choose public loans under which they have lower incentives to save on their management support.
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1118.
Length: 31 pages
Date of creation: Jul 2002
Date of revision:
public equity schemes; public loan schemes; venture capital;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
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- Andrea Schertler, 2002. "Venture Capitalists Investment Incentives Under Public Equity Schemes," Kiel Working Papers 1117, Kiel Institute for the World Economy.
- Christian Keuschnigg & Søren Bo Nielsen, .
"Public Policy for Venture Capital,"
EPRU Working Paper Series
01-06, Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics.
- Andrea Schertler, 2000. "The Impact of Public Subsidies on Venture Capital Investments in Start-Up Enterprises," Kiel Working Papers 1018, Kiel Institute for the World Economy.
- Andrea Schertler, 2002. "Path Dependencies in Venture Capital Markets," Kiel Working Papers 1120, Kiel Institute for the World Economy.
- Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages F73-F84, February.
- Peter Sunley & Britta Klagge & Christian Berndt & Ron Martin, 2005. "Venture capital programmes in the UK and Germany: In what sense regional policies?," Regional Studies, Taylor & Francis Journals, vol. 39(2), pages 255-273.
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