FINANCIAL CONTRACTING BETWEEN MANAGERS AND VENTURE CAPITALISTS: THE ROLE OF VALUE-ADDED SERVICES, REPUTATION SEEKING, AND BARGAINING POWER
I analyze manager and venture capitalist bargaining over the financial contract in the face of double-sided moral hazard problems. The allocation of cash flows depends on the combined effects of value-added services, reputation seeking, and bargaining power. Welfare is maximized when the venture capitalist has high value-adding capabilities, the market for reputation is informationally efficient, and the manager has bargaining power. Furthermore, I consider the effect of exit strategies on the financial agreement. I also consider bidding between venture capitalists of differing abilities. Generally, the superior venture capitalist wins with a lower bid, but in some cases the inferior venture capitalist can win. 2004 The Southern Finance Association and the Southwestern Finance Association.
Year of publication: |
2004
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Authors: | Fairchild, Richard |
Published in: |
Journal of Financial Research. - Southern Finance Association - SFA, ISSN 0270-2592. - Vol. 27.2004, 4, p. 481-495
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Publisher: |
Southern Finance Association - SFA Southwestern Finance Association - SWFA |
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