Financial Contracting with Strategic Investors: Evidence from Corporate Venture Capital Backed IPOs

52 Pages Posted: 25 Mar 2008 Last revised: 15 Jan 2013

See all articles by Ronald W. Masulis

Ronald W. Masulis

University of New South Wales, Sydney; European Corporate Governance Institute (ECGI); Financial Research Network (FIRN); National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER)

Rajarishi Nahata

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: July 10, 2009

Abstract

We analyze financial contracting in start-ups backed by corporate venture capitalists (CVCs). CVCs' strategic goals can economically hurt or benefit the start-ups, depending on product market relationships between start-ups and CVC parents. Empirically, start-ups receive funding from both complementary and competitive CVC parents. However, start-up insiders commonly limit the influence of competitive CVCs, awarding them lower board power, while retaining higher board representation for themselves. Second, lead CVCs receive lower board representation, indicating heightened concerns about their greater influence in start-ups' early stages. Finally, start-ups extract higher valuations from competitive CVCs, reflecting greater moral hazard problems. Overall, CVC strategic objectives affect their early inclusion in VC syndicates, their control rights and share pricing.

Keywords: Venture Capital, Corporate Venture Capital, Financial Contracting, Strategic Investing, Entrepreneurial Companies

JEL Classification: G24

Suggested Citation

Masulis, Ronald W. and Nahata, Rajarishi, Financial Contracting with Strategic Investors: Evidence from Corporate Venture Capital Backed IPOs (July 10, 2009). Journal of Financial Intermediation, 2009 (18), 599-631. Available at SSRN: https://ssrn.com/abstract=891605 or http://dx.doi.org/10.2139/ssrn.891605

Ronald W. Masulis (Contact Author)

University of New South Wales, Sydney ( email )

UNSW Business School
High St
Sydney, NSW 2052
Australia
612-9385-5860 (Phone)
612-9385-6347 (Fax)

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

National University of Singapore (NUS) - Asian Bureau of Finance and Economic Research (ABFER) ( email )

BIZ 2 Storey 4, 04-05
1 Business Link
Singapore, 117592
Singapore

Rajarishi Nahata

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
691
Abstract Views
3,465
rank
37,909
PlumX Metrics