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Strategic versus financial investors: the role of strategic objectives in financial contracting

Author

Listed:
  • Stefan Arping
  • Sonia Falconieri

Abstract

Strategic investors, such as corporate venture capitalists, engage in the financing of start-up firms to complement their core businesses and to facilitate the internalization of externalities. We argue that while strategic objectives make it more worthwhile for an investor to elicit high entrepreneurial effort, they can also undermine his commitment to penalize poorly performing entrepreneurs by terminating their projects. Based on this tradeoff we develop a theory of financing choice between strategic and financial investors. Our framework provides insights into the design of corporate venturing deals and the choice between corporate venturing and independent venture capital finance. Copyright 2010 Oxford University Press 2009 All rights reserved, Oxford University Press.

Suggested Citation

  • Stefan Arping & Sonia Falconieri, 2010. "Strategic versus financial investors: the role of strategic objectives in financial contracting," Oxford Economic Papers, Oxford University Press, vol. 62(4), pages 691-714, October.
    • Handle: RePEc:oup:oxecpp:v:62:y:2010:i:4:p:691-714
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    File URL: http://hdl.handle.net/10.1093/oep/gpp038
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    Cited by:

    1. Julia Hirsch & Uwe Walz, 2013. "Why do contracts differ between venture capital types?," Small Business Economics, Springer, vol. 40(3), pages 511-525, April.
    2. Dominique Dufour & Eric Nasica & Dominique Torre, 2013. "Rendements financiers versus rendements stratégiques : une comparaison des stratégies de syndication des capital-risqueurs captifs et indépendants," Working Papers halshs-00924748, HAL.
    3. Eric Nasica & Dominique Torre & Dufour Dominique, 2016. "Clusters et efficacité du capital-risque: une analyse des stratégies différenciées des fonds indépendants et des fonds industriels," Post-Print halshs-01389932, HAL.
    4. Eric Nasica & Dominique Torre & Dominique Dufour, 2011. "Syndication in private equity industry: comparing the strategies of independent and captive venture capitalists," Post-Print halshs-00720785, HAL.
    5. Sunny Hahn & Jina Kang, 2017. "Complementary or conflictory?: the effects of the composition of the syndicate on venture capital-backed IPOs in the US stock market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 77-102, March.
    6. Hong, Jieying, 2020. "The financing of alliance entrepreneurship," Journal of Business Venturing, Elsevier, vol. 35(1).

    More about this item

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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