Why Do Contracts Differ between VC Types? Market Segmentation Versus Corporate Governance Varieties

Hirsch, Julia; Walz, Uwe

doi:10.2139/ssrn.907002

Why Do Contracts Differ between VC Types? Market Segmentation Versus Corporate Governance Varieties

CFS Working Paper No. 2006/12

EFA 2007 Ljubljana Meetings Paper

53 Pages Posted: 8 Jun 2006

See all articles by Julia Hirsch

Uwe Walz

Goethe University Frankfurt - Institute of Economics; Center For Financial Studies (CFS); Leibniz Institute for Financial Research SAFE

Date Written: March 2006

Abstract

The main objective of the present paper is to disentangle observed differences in the design of contracts across VC types into firm selection effects and corporate governance differences between VC types (different contracts). Based on a theoretical approach developed in the first part of the paper, we investigate in the second part these issues empirically by using a unique, hand-collected German data set consisting of all contractual details of VC investments into 290 entrepreneurial firms in the period 1990-2004. By employing various matching procedures, we show that VC types differ in both firm choice and corporate governance approach.

Keywords: Venture Capital, Corporate Governance, Matching, Contract Design

JEL Classification: G24, G32, G34

Suggested Citation: Suggested Citation

Hirsch, Julia and Walz, Uwe, Why Do Contracts Differ between VC Types? Market Segmentation Versus Corporate Governance Varieties (March 2006). CFS Working Paper No. 2006/12, EFA 2007 Ljubljana Meetings Paper, Available at SSRN: https://ssrn.com/abstract=907002 or http://dx.doi.org/10.2139/ssrn.907002