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Why do contracts differ between VC types? Market segmentation versus corporate governance varieties

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  • Hirsch, Julia
  • Walz, Uwe
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    Abstract

    The main objective of the present paper is to disentangle observed differences in the design of contracts across VC types into firm selection effects and corporate governance differences between VC types (different contracts). Based on a theoretical approach developed in the first part of the paper, we investigate in the second part these issues empirically by using a unique, hand-collected German data set consisting of all contractual details of VC investments into 290 entrepreneurial firms in the period 1990-2004. By employing various matching procedures, we show that VC types differ in both firm choice and corporate governance approach. --

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    Bibliographic Info

    Paper provided by Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2006/12.

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    Date of creation: 2006
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    Handle: RePEc:zbw:cfswop:200612

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    Related research

    Keywords: Venture Capital; Corporate Governance; Matching; Contract Design;

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    References

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    1. Steven N. Kaplan & Per Stromberg, 2002. "Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses," NBER Working Papers 8764, National Bureau of Economic Research, Inc.
    2. Julia Hirsch & Carsten Bienz, 2005. "The Dynamics of Venture Capital Contracts," FMG Discussion Papers dp552, Financial Markets Group.
    3. Tykvová, Tereza & Walz, Uwe, 2004. "Are IPOs of Different VCs Different?," ZEW Discussion Papers 04-32, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    4. Chemla, Gilles & de Bettignies, Jean-Etienne, 2003. "Corporate Venture Capital: The Upside of Failure and Competition for Talent," CEPR Discussion Papers 4139, C.E.P.R. Discussion Papers.
    5. Casamatta, Catherine, 2002. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," CEPR Discussion Papers 3475, C.E.P.R. Discussion Papers.
    6. Markus Fr–lich, 2004. "Programme Evaluation with Multiple Treatments," Journal of Economic Surveys, Wiley Blackwell, vol. 18(2), pages 181-224, 04.
    7. Steven N. Kaplan & Per Stromberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Wiley Blackwell, vol. 70(2), pages 281-315, 04.
    8. Uwe Walz & Carsten Bienz, 2006. "Evolution of Decision and Control Rights in Venture Capital Contracts: An Empirical Analysis," FMG Discussion Papers dp585, Financial Markets Group.
    9. Oana Secrieru & Marianne Vigneault, 2004. "Public Venture Capital and Entrepreneurship," Working Papers 04-10, Bank of Canada.
    10. 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.
    11. Steven N. Kaplan & Per Str�mberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
    12. Bascha, Andreas & Walz, Uwe, 2002. "Financing practices in the German venture capital industry: An empirical assessment," CFS Working Paper Series 2002/08, Center for Financial Studies (CFS).
    13. Siegel, Robin & Siegel, Eric & MacMillan, Ian C., 1988. "Corporate venture capitalists: Autonomy, obstacles, and performance," Journal of Business Venturing, Elsevier, vol. 3(3), pages 233-247.
    14. Hellmann, Thomas, 2002. "A theory of strategic venture investing," Journal of Financial Economics, Elsevier, vol. 64(2), pages 285-314, May.
    15. Riyanto, Yohanes E. & Schwienbacher, Armin, 2006. "The strategic use of corporate venture financing for securing demand," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2809-2833, October.
    16. Michael Lechner, 2002. "Program Heterogeneity And Propensity Score Matching: An Application To The Evaluation Of Active Labor Market Policies," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 205-220, May.
    17. Masako Ueda, 2004. "Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation," Journal of Finance, American Finance Association, vol. 59(2), pages 601-621, 04.
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    Cited by:
    1. Christian Schröder, 2009. "Financial System and Innovations: Determinants of Early Stage Venture Capital in Europe," EIIW Discussion paper disbei167, Universitätsbibliothek Wuppertal, University Library.

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