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The Size of Venture Capital and Private Equity Fund PortfoliosGennaro BernileUniversity of Miami - School of Business Administration Douglas CummingYork University - Schulich School of Business Evgeny LyandresBoston University 2007 Journal of Corporate Finance, Vol. 13, pp. 564-590, 2007 Abstract: We propose a model that examines the optimal size of venture capital and private equity fund portfolios. The relationship between a VC and entrepreneurs is characterized by double-sided moral hazard, which causes the VC to trade off larger portfolios against lower values of portfolio companies. We analyze the structural relations between the VC's optimal portfolio structure and entrepreneurs' and VC's productivities, their disutilities of effort, the value of a successful project, and the required initial investment in a venture. We also test the model's predictions using a small proprietary dataset collected through a survey targeted to VC and private equity funds worldwide.
Number of Pages in PDF File: 55 Accepted Paper SeriesDate posted: November 22, 2006 ; Last revised: March 14, 2013Suggested CitationContact Information
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