39 Pages Posted: 22 Mar 2002 Last revised: 13 Oct 2008
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: 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: https://ssrn.com/abstract=302695 or http://dx.doi.org/10.2139/ssrn.302695
By Josh Lerner
By Kate Litvak