Capital Structure in Venture Finance
Douglas J. Cumming
York University - Schulich School of Business
Journal of Corporate Finance, Forthcoming
Prior research has argued that convertible preferred equity is the optimal form of venture capital finance, based on datasets with up to 213 observations from the U.S., where unique tax biases exist in favour of convertible preferred. This paper introduces a comparable sample of 3083 Canadian corporate and limited partnership venture financing transactions spanning the years 1991-2000. The data indicate a variety of securities are used, and convertible preferred equity has not been the most frequent. Empirical tests offer strong support for the proposition that the mix of financing instruments minimizes the costs arising from a set of agency problems.
Keywords: Venture Capital, Capital Structure, Financial Contracting
JEL Classification: G24, G31, G32, G28, G33, G34, G35, G38
Date posted: May 13, 2004
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