We develop a theory and empirical test of how the legal system affects the relationship between venture capitalists and entrepreneurs. The theory uses a double moral hazard framework to show how optimal contracts and investor actions depend on the quality of the legal system. The empirical...

We examine the effect of trust on financial investment and contracting decisions in a micro-economic environment where trust is exogenous. Using hand-collected data on European venture capital, we show that the Eurobarometer measure of trust among nations significantly affects investment...

This paper considers the financing of a research project under uncertainty about the time of completion and the probability of eventual success.The uncertainty about future success gradually diminishes with the arrival of additional funding.The entrepreneur controls the funds and can divert...

This paper examines diversification as a source of value creation and destruction in private equity. The literature has focused on the `diversification discount' in corporations. It has not analyzed diversification in PE-funds, where diversification might increase value by ameliorating...

This survey reviews the growing body of academic work on venture capital. It lays out the major data sources used. It examines the work on venture capital investments in companies, looking at issues of selection, contracting, post-investment services and exits. The survey considers recent work...

IPOs on the EuroNMs have shown very high underpricing.The majority of these IPOs possess specific characteristics such as lock-up agreements, venture-capital financing, ownership by the underwriter and over-allotment options.We study how these characteristics influence the underpricing of firms...

This paper characterizes an optimal group loan contract with costly peer monitoring. Using a fairly standard moral hazard framework, we show that the optimal group lending contract could exhibit a joint-liability scheme. However, optimality of joint-liability requires the involvement of a group...

This paper uses survey data for 60,000 households from 29 transition economies in 2006 and 2010 to explore how the use of banking services is related to household characteristics, as well as to bank ownership, deposit insurance and creditor protection. At the household level we find that the...

This paper investigates how initial inequality can causally affect economic growth when moral hazard problems exist in credit markets.Two regimes of the credit markets aiming at overcoming the moral hazard problems are analyzed.The formal one such as bank relies on intermediary between borrowers...

A large literature showed that small firms experience difficulties in accessing the credit market due to informational asymmetries; these may be mitigated by collateral or relationship lending, possibilities often precluded to small business. We investigate the effect on small business finance...