Peer Monitoring, Syndication, and the Dynamics of Venture Capital Interactions: Theory and Evidence

2019 ◽  
Vol 55 (6) ◽  
pp. 1875-1914 ◽  
Author(s):  
Onur Bayar ◽  
Thomas J. Chemmanur ◽  
Xuan Tian
Keyword(s):  
Theoretical Model ◽  
Venture Capital ◽  
Moral Hazard ◽  
Empirical Analysis ◽  
Venture Capitalist ◽  
Value Addition ◽  
Peer Monitoring ◽  
Moral Hazard Problem ◽  
Model Predictions

We develop a theoretical model providing a new rationale for venture capitalist (VC) syndicate formation and empirically test our model predictions. An entrepreneur obtains financing and two different value-adding inputs from a single VC or from two different VCs, each operating in his area of expertise. We characterize the entrepreneur’s equilibrium choice between contracting with a single VC, individually with multiple VCs, or with a VC syndicate. We show that syndicates mitigate VCs’ moral hazard problem in value addition. We also analyze the dynamics of VC syndicate composition. The results of our empirical analysis are consistent with our model’s predictions.

scholarly journals Venture Capital Contracting with Double-Sided Moral Hazard and Fairness Concerns

2018 ◽  
Vol 2018 ◽  
pp. 1-13 ◽  
Author(s):  
Jiajia Chang ◽  
Zhijun Hu
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Maximization Problem ◽  
Venture Capitalist ◽  
Venture Capitalists ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Effort Level ◽  
Fairness Concerns ◽  
Venture Enterprise

The development of new venture enterprise is the result of joint efforts of entrepreneurs and venture capitalists who collaborate based on complementary resources. In this paper, we analyze a venture capital incentive contracting model in which a venture capitalist interacts with an entrepreneur who is risk neutral and fairness concerned, offering him an equity contract. We solve the venture capitalist’s maximization problem in the presence of double-sided moral hazard. Our results show that fairness concerns change the structure of the optimal contract. More importantly, we show that the solution to the contract regarding the optimal share given to the entrepreneur is nonlinear and is a fixed point between 0 and 1. Further, we simulate the model under the assumption that venture project’s revenue is a Constant Elasticity of Substitution (CES) function and obtain the following results. (1) When the two efforts are complementary, the venture capitalist’s effort does not monotonically decrease in the share allocated to the entrepreneur, while the entrepreneur’s effort does not monotonically increase in his share. (2) Relative to the benchmark case where the entrepreneur is fairness neutral, the optimal equity share allocated to the fair-minded entrepreneur is larger than 1/2, and as the degree of efforts complementarity increases, the optimal equity share tends to 60%. In this scenario, for a given efforts substitution parameter, the fair-minded entrepreneur provides a higher effort level than the venture capitalist.

scholarly journals An Empirical Analysis of Underpricing and Oversubscription between Venture-Backed IPO and Non-Venture-Backed IPO in Italy

2019 ◽  
Vol 12 (4) ◽  
pp. 143 ◽  
Author(s):  
Maurizio Rija
Keyword(s):  
Stock Market ◽  
Venture Capital ◽  
Empirical Analysis ◽  
Private Equity ◽  
Venture Capitalist ◽  
Information Asymmetries ◽  
Anglo Saxon ◽  
Economic Literature ◽  
Risk Capital ◽  
Institutional Investment

Over the years, in order to meet the financial needs of companies, new forms of financing alternative to the traditional banking channel have been developed. These include the institutional investment in risk capital, which is defined by the terms Anglo-Saxon venture capital and private equity. In this empirical analysis, the divestment of the venture capitalist's participation will be emphasized by listing the invested companies in the stock market, a channel not widely used in Italy, but highly desired because of the various benefits it can bring. Analyzing the IPOs that were carried out in Italy on the main list from 2007 to 2017, we will verify what is described in the economic literature, which is that a venture capitalist, by performing a certification role, is able to reduce the information asymmetries presented in the listing process and, as a result, contain underpricing and improve oversubscription. By using the presence of a venture capitalist within the venture capital as the only variable, it has been observed that on average the underpricing and oversubscription of the venture-backed IPOs slightly differentiate from the non-venture-backed IPOs. However, the study carried out shows that this difference, although not significant, turns out to be very interesting.

scholarly journals Model for Design of Portfolio Venture Investment Contract When Taking Moral Hazards into Account

2020 ◽  
Vol 2020 ◽  
pp. 1-6
Author(s):  
L. Yin ◽  
Y. Liu ◽  
Z. Wang
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Marginal Cost ◽  
Venture Capitalist ◽  
Portfolio Investment ◽  
Marginal Benefit ◽  
Moral Hazards ◽  
Hazard Reduction ◽  
Venture Investment ◽  
High Level

Portfolio investment is adopted by the venture capital to diversify those risks involved in project selection, investing or operating so that the venture capitalist can expect a relatively stable income and lower financing risks. Based on the design of portfolio investment contract with unlimited funds developed by Kanniainen and Keuschnigg, and Inderst et al., this article makes a modification and presents a model given the limitation of funds available for the venture capitalist. It is demonstrated that the marginal benefit of efforts paid by the entrepreneurs exceeds the marginal cost, given the limitation of funds available, which will conduce to a high-level engagement of the entrepreneurs. Thus, by adopting the design of renegotiation contract, the venture capitalist can manage to stimulate the entrepreneurs to make efforts, which is to result in moral hazard reduction.

scholarly journals Moral Hazard and Claims Deterrence in Private Disability Insurance

2014 ◽  
Vol 6 (4) ◽  
pp. 110-141 ◽  
Author(s):  
David Autor ◽  
Mark Duggan ◽  
Jonathan Gruber
Keyword(s):  
Moral Hazard ◽  
Empirical Analysis ◽  
Time Variation ◽  
Rate Increase ◽  
Disability Insurance ◽  
Severe Disabilities ◽  
Replacement Rate ◽  
Waiting Period ◽  
Over Time

Exploiting within-firm, over-time variation in plan parameters for nearly 10,000 Long Term Disability (LTD) policies held by US employers, we present the first empirical analysis of the determinants of private LTD spells. We find that a shorter waiting period and a higher replacement rate increase the incidence of LTD spells. Sixty percent of the latter effect is due to the mechanical censoring of shorter spells, with the remainder due to the deterrence of spells that would have continued beyond the waiting period. Deterrence is driven primarily by a reduction in the incidence of shorter duration spells and less severe disabilities. (JEL D82, G22, J28, J32)

scholarly journals Research on Community Fresh O2O Purchase Intention Based on Customer Perceived Value

2020 ◽  
Vol 3 (5) ◽  
Author(s):  
Lixing Zhou
Keyword(s):  
Regression Analysis ◽  
Theoretical Model ◽  
Empirical Analysis ◽  
Purchase Intention ◽  
Perceived Value ◽  
Analysis Method ◽  
Social And Emotional ◽  
Customer Perceived Value ◽  
Intermediary Role ◽  
Emotional Value

Based on the theory of customer perceived value, this paper makes an empirical analysis on the purchase intention of community fresh O2O, and proposes the customer perceived value concept including result, program, service, social and emotional value. At the same time, the intermediary variable of consumption attitude is put forward and the theoretical model constructed. It is verified that perceived value significantly influences purchase intention and consumption attitude, and plays an intermediary role between them by regression analysis method. This detailed study on the mechanism of perceived value influencing purchase intention through consumption attitude is of great guidance value.

Sign in / Sign up

Export Citation Format

Share Document