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Peer Monitoring, Syndication, and the Dynamics of Venture Capital Interactions: Theory and Evidence

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  • Bayar, Onur
  • Chemmanur, Thomas J.
  • Tian, Xuan

Abstract

We develop a theoretical model providing a new rationale for venture capitalist (VC) syndicate formation and empirically test our model predictions. An entrepreneur obtains financing and two different value-adding inputs from a single VC or from two different VCs, each operating in his area of expertise. We characterize the entrepreneur’s equilibrium choice between contracting with a single VC, individually with multiple VCs, or with a VC syndicate. We show that syndicates mitigate VCs’ moral hazard problem in value addition. We also analyze the dynamics of VC syndicate composition. The results of our empirical analysis are consistent with our model’s predictions.

Suggested Citation

  • Bayar, Onur & Chemmanur, Thomas J. & Tian, Xuan, 2020. "Peer Monitoring, Syndication, and the Dynamics of Venture Capital Interactions: Theory and Evidence," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(6), pages 1875-1914, September.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:6:p:1875-1914_4
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    Cited by:

    1. Nguyen, Giang & Vu, Le, 2021. "Does venture capital syndication affect mergers and acquisitions?," Journal of Corporate Finance, Elsevier, vol. 67(C).
    2. Shao, Chuanlin & Tao, Yunqing & Chen, Dong & Ye, Yongwei, 2023. "Curse or blessing: National industrial investment fund and corporate R&D in China," Finance Research Letters, Elsevier, vol. 54(C).
    3. Cumming, Douglas J. & Nguyen, Giang & Nguyen, My, 2022. "Product market competition, venture capital, and the success of entrepreneurial firms," Journal of Banking & Finance, Elsevier, vol. 144(C).
    4. Onur Bayar & Emre Kesici, 2024. "The impact of social media on venture capital financing: evidence from Twitter interactions," Review of Quantitative Finance and Accounting, Springer, vol. 62(1), pages 195-224, January.
    5. Nguyen, Giang & Vo, Vinh, 2021. "Asset liquidity and venture capital investment," Journal of Corporate Finance, Elsevier, vol. 69(C).
    6. Bibo Liu & Xuan Tian, 2022. "Do Venture Capital Investors Learn from Public Markets?," Management Science, INFORMS, vol. 68(10), pages 7274-7297, October.
    7. Kang, Jun-Koo & Li, Yingxiang & Oh, Seungjoon, 2022. "Venture Capital Coordination in Syndicates, Corporate Monitoring, and Firm Performance," Journal of Financial Intermediation, Elsevier, vol. 50(C).
    8. William Aparecido Maciel da Silva & Michele Nascimento Jucá, 2023. "Determinants of Startup´s Value According to Venture Capitalists," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 96-118.

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