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Contracts and Exits in Venture Capital Finance

39 Pages Posted: 22 Mar 2002 Last revised: 13 Oct 2008

Douglas J. Cumming

York University - Schulich School of Business

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Using a sample of European venture capital investments, I study the relation between venture capital (VC) contracts and exits. The data indicate that ex ante, stronger VC control rights increase the likelihood that an entrepreneurial firm will exit by an acquisition, rather than through a write-off or an IPO. My findings are robust to controls for a variety of factors, including endogeneity and cases in which the VC preplans the exit at the time of time of contract choice. My findings are consistent with control-based theories of financial contracting, such as Aghion and Bolton (1992).

Keywords: Venture Capital, Financial Contracting, Exit, IPO, Acquisition

JEL Classification: G24, G28, G31, G32, G35

Suggested Citation

Cumming, Douglas J., Contracts and Exits in Venture Capital Finance. AFA 2003 Washington, DC Meetings; The Review of Financial Studies, Vol. 21, Issue 5, pp. 1947-1982, 2008. Available at SSRN: or

Douglas J. Cumming (Contact Author)

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3


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