Adverse Selection, Investor Experience and Security Choice in Venture Capital Finance: Evidence from Germany

36 Pages Posted: 31 May 2011

See all articles by Thomas Hartmann-Wendels

Thomas Hartmann-Wendels

University of Cologne - Department of Banking

Georg Keienburg

University of Cologne

Soenke Sievers

Paderborn University

Multiple version iconThere are 2 versions of this paper

Date Written: June 2011

Abstract

This article analyses 336 German venture capital transactions from 1990 to 2005 and seeks to determine why selected financial securities differ across deals. We find that a broad array of financial instruments is used, covering straight equity, mezzanine and debt‐like securities. Based on the chosen financial securities’ upside potential and downside protection characteristics, we provide an explanation for the differing use of these securities. Our results show that investors’ deal experience, adverse selection risks and economic prospects in the public equity market influence the selection of financial securities.

Keywords: venture capital, capital structure, contract theory, deal experience

JEL Classification: G24, G32

Suggested Citation

Hartmann-Wendels, Thomas and Keienburg, Georg and Sievers, Soenke, Adverse Selection, Investor Experience and Security Choice in Venture Capital Finance: Evidence from Germany (June 2011). European Financial Management, Vol. 17, Issue 3, pp. 464-499, 2011. Available at SSRN: https://ssrn.com/abstract=1854156 or http://dx.doi.org/10.1111/j.1468-036X.2010.00568.x

Thomas Hartmann-Wendels

University of Cologne - Department of Banking ( email )

Albertus-Magnus-Platz
D-50923 Cologne
Germany

Georg Keienburg (Contact Author)

University of Cologne ( email )

Albertus-Magnus-Platz
Cologne, 50923
Germany
0049-221-470-4432 (Phone)

Soenke Sievers

Paderborn University ( email )

Warburger Str. 100
Paderborn, 33098
Germany

HOME PAGE: http://www.upb.de/accounting

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