Mitigation of Moral Hazard and Adverse Selection in Venture Capital Financing: The Influence of the Country's Institutional Setting

A venture capitalist (VC) needs to trade off benefits and costs when attempting to mitigate agency problems in their investor‐investee relationship. We argue that signals of ventures complement the VC's capacity to screen and conduct a due diligence during the preinvestment phase, but its attractiveness may diminish in institutional settings supporting greater transparency. Similarly, whereas a VC may opt for contractual covenants to curb potential opportunism by ventures in the postinvestment phase, this may only be effective in settings supportive of shareholder rights enforcement. Using an international sample of VC contracts, our study finds broad support for these conjectures. It delineates theoretical and practical implications for how investors can best deploy their capital in different institutional settings while nurturing their relationships with entrepreneurs.     

Digitalisierung und die Zukunft der Arbeit

Wirtschaftsdienst - Durch eine rasant wachsende Rechenleistung können immer mehr Tätigkeiten, die bislang dem Menschen vorbehalten schienen, mittels Maschinen und Algorithmen...     

Corporate venture capital as a strategy for external innovation: an exploratory empirical study

By creating corporate venture capital (CVC) units, large corporations predominantly pursue strategic objectives, especially the realisation of external innovations. Theoretical and preliminary empirical results on corporate venturing suggest how to manage CVC in order to achieve strategic objectives. We analyse for a sample of 21 corporate venture units in Germany, if the respective CVC programmes pursue the strategic objective to leverage external innovation and if these programmes are managed accordingly. We find that the majority of German corporate venture programmes follow mixed objectives and are not organised and managed as suggested in the literature. We come to the conclusion that a short-term focus on financial objectives of these CVC programmes prohibits the achievement of long-term strategic benefits from external innovation.     

Technology and public goods

This paper presents a theory of public goods based on production theory where public goods are viewed as inputs to the production process. We examine the pure case of public inputs (no private inputs) as well as the mixed case (private and public inputs). We show how the case of public inputs is related to certain forms of nonjoint production, and we characterize it in terms of variable profit and joint cost functions. Comparative statics results are derived graphically in the two-by-two case.     

Fixed versus flexible exchange rates in an equilibrium business cycle model

This essay re-examines the question of which exchange rate regime is preferable, using a rational expectations model that explicitly incorporates wealth, and emphasizing the information-signalling role of prices. Previous authors have stressed the argument that floating rates provide agents with an additional source of information, which improves forecasting accuracy, leading to more efficient allocations. This paper adds the counterweighing argument that they also have the effect, in contrast to fixed rates, of introducing an additional source of (monetary) disturbances in the determination of real variables. Another issue addressed is the nature of exchange rate adjustments to monetary disturbances.     

The emergence of a protective agency and the constitutional dilemma

In the last decades' revival of contractarianism a constitutional contract is interpreted as a device to overcome the hypothetical state of anarchy. It is not entirely clear, however, how, in a pre-constitutional setting that lacks any institutional forms, an unanimous agreement on the rules and the agency enforcing the rules can be imagined to emerge. This paper conceptualizes the problem in game-theoretic terms. A solution is discussed together with an old dilemma that turns up in this context. The dilemma results from the fact that the protective agency has to be endowed with sufficiently powerful coercive means to prevent anyone breaking the social contract. However, this concentration of power itself may induce a violation by making the protective agency usurp its power. The logical basis of the dilemma is explored together with the conditions under which it may challenge the contractarian approach. I would like to thank Juli Irving-Lessmann, Dennis Mueller, Viktor Vanberg, Georg von Wangenheim, and in particular Hartmut Kliemt for helpful comments on an earlier draft.