FINANCIAL CONTRACTING BETWEEN MANAGERS AND VENTURE CAPITALISTS: THE ROLE OF VALUE‐ADDED SERVICES,REPUTATION SEEKING,AND BARGAINING POWER |
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Authors: | Richard Fairchild |
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Abstract: | I analyze manager and venture capitalist bargaining over the financial contract in the face of double‐sided moral hazard problems. The allocation of cash flows depends on the combined effects of value‐added services, reputation seeking, and bargaining power. Welfare is maximized when the venture capitalist has high value‐adding capabilities, the market for reputation is informationally efficient, and the manager has bargaining power. Furthermore, I consider the effect of exit strategies on the financial agreement. I also consider bidding between venture capitalists of differing abilities. Generally, the superior venture capitalist wins with a lower bid, but in some cases the inferior venture capitalist can win. |
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Keywords: | C78 G24 G32 |
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