scholarly journals How time-inconsistent preferences influence venture capital exit decisions? A new perspective for grandstanding

2022 ◽  
Vol 8 (1) ◽  
Author(s):  
Yanzhao Li ◽  
Ju-e Guo ◽  
Shaolong Sun ◽  
Yongwu Li
Keyword(s):  
Venture Capital ◽  
Time Consistency ◽  
Time Inconsistency ◽  
Venture Capitalists ◽  
Time Flow ◽  
Advance Research ◽  
Exit Decisions ◽  
New Perspective ◽  
Time Inconsistent ◽  
Time Point

AbstractConsidering that the assumption of time consistency does not adequately reveal the mechanisms of exit decisions of venture capital (VC), this study proposes two kinds of time-inconsistent preferences (i.e., time-flow inconsistency and time-point inconsistency) to advance research in this field. Time-flow inconsistency is in line with the previous time inconsistency literature, while time-point inconsistency is rooted in the VC fund’s finite lifespan. Based on the assumption about the strategies guiding future behaviors, we consider four types of venture capitalists: time-consistent, time-point-inconsistent, naïve, and sophisticated venture capitalists, of which the latter three are time-inconsistent. We derive and compare the exit thresholds of these four types of venture capitalists. The main results include: (1) time-inconsistent preferences accelerate the exits of venture capitalists; (2) the closer the VC funds expiry dates are, the more likely time-inconsistent venture capitalists are to accelerate their exits; and (3) future selves caused by time-flow inconsistency weaken the effect of time-point inconsistency. Our study provides a behavioral explanation for the empirical fact of young VCs’ grandstanding.

Collaboration Among Silicon Valley Venture Capitalists

2019 ◽  
pp. 200-219
Author(s):  
Lyda Bigelow ◽  
Jennifer Kuan ◽  
Kyle Mayer
Keyword(s):  
Venture Capital ◽  
Regulatory Focus ◽  
Regional Differences ◽  
Silicon Valley ◽  
Psychological Effects ◽  
Venture Capitalists ◽  
Regulatory Focus Theory ◽  
Industry Clusters ◽  
Entrepreneurial Ventures ◽  
Point Of Entry

Regional differences among industry clusters have long been a puzzle, especially when performance differences are significant. This chapter examines the case of venture capital investing, in which Silicon Valley differs from the rest of the world despite attempts to imitate its model. The point of entry in this chapter is the contract between venture capitalist and entrepreneur. Although such contracts have been analyzed in other research, this chapter argues that the psychological effects of different contract styles are of primary importance to innovative outcomes of entrepreneurial ventures. Thus, it argues that regulatory focus theory, which considers the psychological effects of contracting, is essential to understanding differences in practice and outcomes in venture capital clusters.

scholarly journals Confidence in future monetary policy as a way to overcome the liquidity trap

2019 ◽  
Vol 5 (2) ◽  
pp. 117-135
Author(s):  
Olga Kuznetsova ◽  
Sergey Merzlyakov ◽  
Sergey Pekarski
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Large Scale ◽  
Global Financial Crisis ◽  
Time Consistency ◽  
Central Banks ◽  
Time Inconsistency ◽  
Liquidity Trap ◽  
Developed Economies ◽  
The Global Financial Crisis

The global financial crisis of 2007–2009 has changed the landscape for monetary policy. Many central banks in developed economies had to employ various unconventional policy tools to overcome a liquidity trap. These included large-scale asset purchase programs, forward guidance and negative interest rate policies. While recently, some central banks were able to return to conventional monetary policy, for many countries the effectiveness of unconventional policies remains an issue. In this paper we assess diverse practices of unconventional monetary policy with a particular focus on expectations and time consistency. The principal aspect of successful policy in terms of overcoming a liquidity trap is the confidence that interest rates will remain low for a prolonged period. However, forming such expectations faces the problem of time inconsistency of optimal policy. We discuss some directions to solve this problem.

scholarly journals Resolving Time Inconsistency of Decision Problem with Non-expectation Operator: From Internal Conflict to Internal Harmony by Strategy of Self-Coordination

2020 ◽  
Author(s):  
Xiangyu Cui ◽  
Duan Li ◽  
Yun Shi
Keyword(s):  
Decision Maker ◽  
Decision Problem ◽  
Hyperbolic Discounting ◽  
Time Inconsistency ◽  
Internal Conflict ◽  
Equilibrium Strategy ◽  
Game Model ◽  
Long Run ◽  
Short Run ◽  
Time Inconsistent

When a stochastic decision problem is time inconsistent, the decision maker would be puzzled by his conflicting decisions optimally derived from his time-varying preferences at different time instants (with different time horizons). While the long-run self (LR) of the decision maker pursues the long-term optimality, the short-run selves (SRs) of the decision maker at different time instants bow to short-term temptations. While the literature began to recognize the importance to strike a balance between LR's and SRs' interests, the existing results are not applicable to situations where the decision maker's preferences involve non-expectation operators. We propose an operable unified two-tier dual-self game model with commitment by punishment, which can cope with general time inconsistent stochastic decision problems with both expectation and non-expectation operators in the objective function. By attaching punishment terms to both the preferences of LR and SRs which quantitatively evaluate the internal conflict among different selves, our game model aligns the interests of the LR and SRs to a certain degree. The equilibrium strategy, termed strategy of self-coordination, achieves some degree of internal harmony among various selves. We successfully apply the model to the investment and consumption problem with quasi-hyperbolic discounting and the dynamic mean-variance portfolio selection problem.

scholarly journals Innovative start-ups and young entrepreneurs: Definition of venture capital and findings from Switzerland

2017 ◽  
Vol 7 (1) ◽  
pp. 75-81
Author(s):  
Simon Zaby
Keyword(s):  
Venture Capital ◽  
Success Factors ◽  
Total Sample ◽  
Venture Capitalists ◽  
Flow Of Funds ◽  
Start Up ◽  
Capital Financing ◽  
Proper Definition ◽  
Definition Of ◽  
Start Ups

This paper aims to investigate success factors of innovative start-up firms from the perspective of young start-up managers. Which key factors did they experience before and since the foundation of their company? The experience from the quite young Swiss start-up scene pro-vides important insights to entrepreneurs and policy-makers in emerging countries that cur-rently face the necessity of building up a start-up environment. One part of the data has been collected by the author, the other part originates from the Swiss Venture Capital Database (total sample size: 306). The results show a significant role of venture capital financing for the success of innovative start-ups. Interestingly, this is to some extent because the start-ups see various additional benefits from venture capitalists involved in their firm. Thus, the findings shed new light on a proper definition of venture capital that should not solely focus on the flow of funds.

Mean-variance equilibrium asset-liability management strategy with cointegrated assets

2021 ◽  
Vol 62 ◽  
pp. 209-234
Author(s):  
Mei Choi Chiu
Keyword(s):  
Financial Market ◽  
Time Consistency ◽  
Time Inconsistency ◽  
Asset Liability Management ◽  
Risky Assets ◽  
Liability Management ◽  
Equilibrium Control ◽  
Management Problems ◽  
Hamilton Jacobi Bellman ◽  
Mean Variance

This paper investigates asset-liability management problems in a continuous-time economy. When the financial market consists of cointegrated risky assets, institutional investors attempt to make profit from the cointegration feature on the one hand, while on the other hand they need to maintain a stable surplus level, that is, the company’s wealth less its liability. Challenges occur when the liability is random and cannot be fully financed or hedged through the financial market. For mean–variance investors, an additional concern is the rational time-consistency issue, which ensures that a decision made in the future will not be restricted by the current surplus level. By putting all these factors together, this paper derives a closed-form feedback equilibrium control for time-consistent mean–variance asset-liability management problems with cointegrated risky assets. The solution is built upon the Hamilton–Jacobi–Bellman framework addressing time inconsistency. doi: 10.1017/S1446181120000164

scholarly journals Exit Decision of Venture Capital Based on Linear Contract in Continuous Time: IPO or M&A

Complexity ◽  
2020 ◽  
Vol 2020 ◽  
pp. 1-19
Author(s):  
Ding Chuan ◽  
Dahai Li ◽  
Meishu Ye
Keyword(s):  
Social Welfare ◽  
Venture Capital ◽  
Interest Rates ◽  
Initial Public Offering ◽  
Continuous Time ◽  
Production Efficiency ◽  
Venture Capitalists ◽  
Social Welfare Maximization ◽  
Incentive Problem ◽  
Public Offering

Based on the assumption that the long-term value of a venture capital satisfies the algebraic Brownian motion, we develop a continuous-time exit model of venture capital under different exit modes, namely, initial public offering (IPO) and mergers and acquisitions (M&A). The employee incentive problem is analyzed jointly with the exit decision of the firm in terms of the exit timing and the exit mode. Further, the problem of capital exit is considered from two perspectives, namely, optimal venture capital and social welfare maximization, and the differences between these exit decisions are compared. Our model predicts that the timing of an IPO, the purpose of which is to maximize the utility of the capitalists, lags behind the exit timing, whose purpose is to maximize social welfare. Using a numerical analysis, this paper also proves that increasing the production efficiency, lowering the interest rates, and improving risk management can make the exit decision of venture capitalists converge with that of maximizing social welfare.

Venture Capital Communities

2019 ◽  
Vol 55 (2) ◽  
pp. 621-651 ◽  
Author(s):  
Amit Bubna ◽  
Sanjiv R. Das ◽  
Nagpurnanand Prabhala
Keyword(s):  
Machine Learning ◽  
Venture Capital ◽  
Computational Methods ◽  
Small Groups ◽  
Early Stage ◽  
Spatial Location ◽  
Venture Capitalists ◽  
Learning Tools ◽  
Physical Sciences

Although venture capitalists (VCs) can choose from thousands of potential syndicate partners, many co-syndicate with small groups of preferred partners. We term these groups “VC communities.” We apply computational methods from the physical sciences to 3 decades of syndication data to identify these communities. We find that communities comprise VCs that are similar in age, connectedness, and functional style but undifferentiated in spatial location. Machine-learning tools classify communities into 3 groups roughly ordered by their age and reach. Community VC financing is associated with faster maturation and greater innovation, especially for early-stage firms without an innovation history.

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