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Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts

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  • STEVEN N. KAPLAN
  • PER STRÖMBERG

Abstract

We compare the characteristics of real-world financial contracts to their counterparts in financial contracting theory. We do so by studying the actual contracts between venture capitalists (VCs) and entrepreneurs. The distinguishing characteristic of VC financings is that they allow VCs to separately allocate cash flow rights, board rights, voting rights, liquidation rights, and other control rights. We describe and measure these rights. We then interpret our results in relation to existing financial contracting theories. We also describe the interrelation and the evolution across financing rounds of the different rights. Copyright The Review of Economic Studies Limited, 2003.

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Bibliographic Info

Paper provided by Center for Research in Security Prices, Graduate School of Business, University of Chicago in its series CRSP working papers with number 513.

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Date of creation: Mar 2000
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Handle: RePEc:wop:chispw:513

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