Information and Control in Alliances and Ventures

46 Pages Posted: 6 Aug 2002

See all articles by Wouter Dessein

Wouter Dessein

University of Chicago - Booth School of Business

Date Written: June 2002

Abstract

The allocation of control rights in a venture does not matter if partners have congruent preferences. This Paper develops a theory of control as a signal of congruence, and applies it to the structure of alliances between a privately informed "entrepreneur" (technology firm) and an "investor" (large corporation). Investor control increases when the entrepreneur is better informed or when the information that the investor receives during the course of the venture is more noisy. More investor control, however, often results in less investor interference, since the investor puts more trust in the entrepreneur upon receiving more control and, hence, has a tendency to neglect ambiguous information ex post. As a result, the cost of signaling is endogenous and the quality of the post-contracting information constrains the amount of pre-contracting information that can be revealed. Our results are in line with empirical findings on control rights in biotechnology alliances and venture capital contracts.

Keywords: Control rights, venture capital, authority, asymmetric information, biotechnology alliances

JEL Classification: D82, G24, G32, L20

Suggested Citation

Dessein, Wouter, Information and Control in Alliances and Ventures (June 2002). Available at SSRN: https://ssrn.com/abstract=321087

Wouter Dessein (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
46
Abstract Views
1,450
PlumX Metrics