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Entrepreneurial Financing, Advice, and Agency Costs

In: Entrepreneurship: Strategy and Structure

Author

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  • Roland Strausz

Abstract

This paper studies the interplay between advice and agency costs in entrepreneurial financing. We show that advise may exacerbate agency problems, because the agent may use it at the investor's expense and thereby hurt investors. Depending on the magnitude of the agency problem, optimal financing relationship may induce full, partial, or no advice. Because the trade--off between the positive and negative effect of entrepreneurial advice is delicate, investors need to control the information flow carefully. This explains the dual role of financing and consulting by investors in entrepreneurial financing.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Roland Strausz, 2007. "Entrepreneurial Financing, Advice, and Agency Costs," NBER Chapters, in: Entrepreneurship: Strategy and Structure, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberch:3049
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    Cited by:

    1. is not listed on IDEAS
    2. Kim, Jin-Hyuk & Wagman, Liad, 2014. "Portfolio size and information disclosure: An analysis of startup accelerators," Journal of Corporate Finance, Elsevier, vol. 29(C), pages 520-534.
    3. Dongsoo Shin & Sungho Yun, 2014. "Upfront versus staged financing: the role of verifiability," Quantitative Finance, Taylor & Francis Journals, vol. 14(6), pages 1069-1078, June.
    4. Oleg Muratov, 2023. "Entrepreneur–Investor Information Design," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1431-1467, November.
    5. Roland Strausz, 2024. "Correlation‐savvy sellers," RAND Journal of Economics, RAND Corporation, vol. 55(2), pages 266-291, June.
    6. Thomas Hellmann & Scott Stern, 2009. "Introduction to the Special Issue on Economics and Strategy of Entrepreneurship," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 615-621, September.
    7. Oleg Muratov, 2020. "Entrepreneur-Investor Information Design," Diskussionsschriften dp2014, Universitaet Bern, Departement Volkswirtschaft.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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