Information Asymmetries, Agency Costs and Venture Capital Exit Outcomes
Douglas J. Cumming
York University - Schulich School of Business
York University - Schulich School of Business; Tilburg Law and Economics Center (TILEC)
September 10, 2008
Venture Capital, An International Journal of Entrepreneurial Finance, Vol. 10, pp. 197-231, 2008
This paper provides theory and evidence relating information asymmetries and agency costs to exit outcomes in venture capital backed entrepreneurial firms. Where venture capitalists are able to better mitigate information asymmetries and agency costs faced by the new owners of the firm, they will be more likely to have a successful exit outcome. Information asymmetries and agency costs will vary depending on the characteristics of the venture capitalist and entrepreneurial firm, as well as the structure of the financing arrangement. This paper introduces a new dataset comprising all venture capital exits in Canada for the years 1991 to 2004. The data provide strong support for the conjecture that the ability to mitigate information asymmetries and agency costs is a central factor in influencing exit outcomes.
Number of Pages in PDF File: 45
Keywords: Venture Capital, Exits, Financial Contracts, IPOs, Acquisitions, Secondary Sales, Buybacks, Write-offs
JEL Classification: G23, G24, G28, G32, G38, K22Accepted Paper Series
Date posted: September 11, 2008 ; Last revised: October 16, 2008
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