Information Asymmetries, Agency Costs and Venture Capital Exit Outcomes

Venture Capital, An International Journal of Entrepreneurial Finance, Vol. 10, pp. 197-231, 2008

45 Pages Posted: 11 Sep 2008 Last revised: 16 Oct 2008

See all articles by Douglas J. Cumming

Douglas J. Cumming

Florida Atlantic University

Sofia Johan

Florida Atlantic University - Finance; Tilburg Law and Economics Center (TILEC)

Date Written: September 10, 2008

Abstract

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.

Keywords: Venture Capital, Exits, Financial Contracts, IPOs, Acquisitions, Secondary Sales, Buybacks, Write-offs

JEL Classification: G23, G24, G28, G32, G38, K22

Suggested Citation

Cumming, Douglas J. and Johan, Sofia A., Information Asymmetries, Agency Costs and Venture Capital Exit Outcomes (September 10, 2008). Venture Capital, An International Journal of Entrepreneurial Finance, Vol. 10, pp. 197-231, 2008. Available at SSRN: https://ssrn.com/abstract=1265947

Douglas J. Cumming

Florida Atlantic University ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

HOME PAGE: http://booksite.elsevier.com/9780124095373/

Sofia A. Johan (Contact Author)

Florida Atlantic University - Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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