Fast Growing Small Entrepreneurial Firms and their Venture Capital Backers: an Applied Principal-Agent Analysis
AbstractFirst the empirical background of the UK venture capital industry is developed using a panel of major UK venture capital funds over the period 1988-92. Then a framework for applied principal-agent analysis is developed, focusing on risk management and information. Under risk management it explores attitude to risk, risk sharing and bearing, and the effects of risk bearing on effort. Under information handling, it explores information systems, information asymmetries between investor (venture capitalist) and investee (entrepreneur), and ways of attenuating them, and information variance and costs. Finally, the contract between investor and investee is seen as a device for 'trading' risk and information. The implications of this 'trading' for risk bearing, effort and efficiency are explored. The whole analysis is supported by a detailed case study which reflects current practice in the UK venture capital industry.
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Bibliographic InfoPaper provided by Centre for Research into Industry, Enterprise, Finance and the Firm in its series CRIEFF Discussion Papers with number 9421.
Date of creation: Oct 1994
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small firms; venture capital; principal-agent analysis; case study;
Find related papers by JEL classification:
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
- G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
- L65 - Industrial Organization - - Industry Studies: Manufacturing - - - Chemicals; Rubber; Drugs; Biotechnology
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
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