monitoring is employed by VCs to reduce entrepreneurial moral hazard. When monitoring reveals poor performance, VCs want to … punish the entrepreneur with liquidation. However, when assets are specific and liquidation would lead to a loss, VCs choose … to renegotiate the terms of financing, rather than to liquidate. Renegotiation undermines the threat of liquidation. By …

entrepreneurial moral hazard problem, which can be partially overcome through monitoring only by informed investors. However …, monitoring is only effective if investors can commit ex ante to liquidate the project after observing a poor signal. We show that …

In this paper we use credit rating data from two Swedish banks to elicit evidence on these banks’ loan monitoring …