valuation and control in venture finance this paper presents the model of a relationship between a venture capitalist and an entrepreneur engaged in the formation of a new firm i assume that the entrepreneur derives private nonpecuniary benefits from having some control over the firm i show that to separate the entrepreneur s value of control from the firm s expected payoff the venture capitalist demands disproportionately higher control rights than the size of his equity investment the entrepreneur is compensated for a greater loss of control through better terms of financing ability to extract higher rents from asymmetric information and improved risk sharing venture capital firms often finance projects which at the time of funding have neither revenues nor even a product in existence however by using an intricate system of control rights venture capitalists can overcome many failures inevitable in a complex task of converting entrepreneurial talent into companies products and markets

the economics of small business finance the roles of private equity and debt markets in the financial growth cycle abstract this article examines the economics of financing small business in private equity and debt markets firms are viewed through a financial growth cycle paradigm in which different capital structures are optimal at different points in the cycle we show the sources of small business finance and how capital structure varies with firm size and age the interconnectedness of small firm finance is discussed along with the impact of the macroeconomic environment we also analyze a number of research and policy issues review the literature and suggest topics for future research

finance as a driver of corporate social responsibility finance is grease to the economy therefore we assume that it may affect corporate social responsibility csr and the sustainability of economic development too this paper discusses the transmission mechanisms between finance and sustainability we find that there is no simple one to one relationship between financial development and sustainable development but there are various often indirect linkages it appears that most of the literature concentrates on the role of public shareholders when it comes to changing corporate policy and performance in a more sustainable direction however this focus neglects the potential impact of the credit channel and private equity on a firm s non financial policies and performance these very powerful mechanisms can govern business policies and practices therefore there appears to be much more scope for finance to promote socially and environmentally desirable activities and to discourage detrimental activities than has been acknowledged in the academic literature so far

innovation and employment a reinvestigation using revised pavitt classes the relationship between innovation and employment is addressed in this article through a model and empirical test at industry level for eight european countries in 1994 2004 we investigate this relationship for manufacturing and services and propose a revised pavitt taxonomy covering both of them in order to identify specific patterns of technological change and job creation and loss the contrasting effects of strategies of technological or cost competitiveness are investigated using innovation variables from cis2 and cis3 together with demand wages and industry dynamics they account for changes in employees and hours worked the diversity in these relations across industries is also explored when the model is applied to each revised pavitt class different mechanisms of technological change and effects on jobs emerge

technological progress and optimal factor demand abstract this paper analyzes the employment and investment demands of the competitive firm when technological progress embodied in new investment goods is a source of productivity improvements it is shown that technological progress reduces the implicit cost of capital services as well as its sensitivity to variations in the price system several versions of lechatelier s principle are established showing how technological progress modifies the price sensitivity of the factor demands rapid technological progress makes the factor demands less sensitive to price variations however employment demand becomes less more sensitive to interest rate changes when capital and labor are complements substitutes

financial intermediation as a beliefs bridge between optimists and pessimists this paper proposes a new framework for understandingnancial intermediation in contrast to previous research we consider a setting in which intermediaries possess no inherent information processing or monitoring advantages instead in an economy with overly optimistic entrepreneurs who require funding from overly skeptical pessimistic investors we show that intermediaries can arise endogenously in such a setting only a rational intermediary will be su ciently optimistic tond it worthwhile to invest in a technology for screening entrepreneurs projects and yet be pessimistic enough to use this technology our framework produces implications consistent with heretofore unexplained stylized facts and a number of others which are as of yet untested

the choice of equity selling mechanisms abstract this paper examines the impact of information asymmetry and monitoring of managers on the choice between public offerings and private placements three key findings emerge first private placement firms have higher information asymmetry than public offering firms second private placement investors do not engage in more monitoring than public offering investors finally discounts for private placements sold to managers are higher than discounts for private placements in which managers do not participate the final two findings cast doubts on the widely held view that private placements are motivated by a demand for enhanced monitoring

structural change in the uk 1974 84 an input output analysis this paper studies structural change in the uk based on three comparable input output tables structural change is measured by changes in intermediate input flows these may represent either changes is demand or technical and organizational change the focus on intermediate demand offers a different perspective to the more usual approach to measuring structural change which implicitly assumes that the sectoral destination of the output supplied is irrelevant a rich tapestry of results obtained in addtion to the expected effect of an increased pace of change using broad sectoral categories

comment on bergemann and hege dirk bergemann and ulrich hege examine in this paper the reasons why venture capitalists provide funds to entrepreneurs in successive financing rounds or stages this is an interesting analysis of one of the most important mechanisms that venture capitalists employ to control entrepreneurs an issue that surely deserves greater theoretical and empirical attention the authors approach to these issues is a creative and novel one at the same time some assumptions and predictions of the model seem quite at odds with the empirical evidence about venture capital investments in this discussion i will first briefly summarize the key features and predictions of the paper i will then highlight several of my concerns with the model the discussion concludes with some more general thoughts about the rationales for the staging of venture capital investments in young firms the paper depicts the interactions between a single entrepreneur and a venture investor the entrepreneur who has no financial resources must turn to a venture capitalist for funding it is assumed that the entrepreneur initially has the bargaining power in the negotiation the large number of potential venture investors are not diaerentiated dynamic interactions between several venture capitalists in diaerent financing rounds of the type analyzed by admati and pfleiderer 1994 are not considered in this model the project whose quality is initially uncertain can turn out to be one of two types good or bad the good projects are not revealed immediately rather in each period there is some probability that the project will be revealed to be good and generate a fixed return at which point the venture investor s involvement ends the probability of a successful outcome is increasing with

a theory of corporate capital structure and investment this article uses a general equilibrium framework to explore the origins and limitations of financial intermediaries in the model investors have a generic lending technology that they can improve at a cost those who upgrade become intermediaries to exploit their advantage however conflicts with depositors will limit the banks market presence and they will only lend to moderately endowed firms while bondholders will finance cash rich corporations the article also analyzes the extent to which investors adopt the superior lending technique the nature of bank competition and how corporate and bank conditions affect interest rates and investment copyright 2004 oxford university press

do turnover costs protect insiders the ability of insiders to extract rents associated with exogenous turnover costs is addressed in a dynamic model the higher these rents the higher is the incentives for outsiders to obtain future insider status and thus to underbid current insiders as a consequence there is a lower limit to the number of insiders that can avoid entrance of outsiders and the insiders cannot in each period obtain a rent equal to the turnover costs the insider model never explains a lower but may result in a higher employment level than in the case where all workers are wage takers copyright 1994 by royal economic society

on union preferences and labour market models insiders and outsiders this paper constructs a model of trade union behavior in which there is a distinction between insiders and outsiders this is used to examine one of the most troublesome issues in macroeconomic theory namely the extent to which a rise in aggregate demand might generate wage increases rather than growth in employment a generalization of the most widely used union utility function is presented the analysis reveals the conditions under which insiders will agree to let outsiders into employment derives two step wage preferences and proves a new result on wage rigidity copyright 1987 by royal economic society

venture capital in europe and the financing of innovative companies european venture captial venture capital is considered to be the most appropriate form of financing for innovative firms in high tech sectors venture capital has greatly developed over the last three decades in the united states but much less so in europe where policy makers are striving to help channel more funds into this form of financial intermediation in this paper we provide the first assessment of venture capital in europe we document its development in the 1990s and compare it with that of american venture capital we find the wedge between them to be large and growing we then look at the involvement of venture capital with some of europe s most innovative and successful companies those listed on europe s new stock markets venture capital is effective in helping these firms overcome credit constraints and thus to be born in the first place using a unique hand collected data set from the listing prospectuses and annual reports of these companies we find european venture capital to have a limited effect on their ability to raise equity capital grow and create jobs we conclude that public support of the european venture capital industry should look at both its growth and at its maturation laura bottazzi and marco da rin

the impact of the affiliation of venture capital firms a survey the aim of this paper is to review the theoretical and empirical literature on the impact of the affiliation of venture capital vc firms with a particular focus on the differences between europe and the us a main characteristic of vc firms is their high level of involvement in the management of funded firms however the vc industry is composed of heterogeneous actors the literature has studied to a great degree the independent funds that dominate the us market yet there also exist vc funds affiliated with banks or with industrial firm which can benefit from synergies with their parent corporation several studies have highlighted significant differences between these types of vc firms

competitive equilibrium with type convergence in an asymmetrically informed market this article studies an asymmetric information game with type convergence in which under some realizations of a common uncertainity inducing informed agents to reveal their types through self selection by contract choice is either costly or impossible under other realizations self selection permits costless distinctions between informed agents i obtain sufficient conditions under which contracting with options prior to the realization of the common uncertainity leads to the existence of a perfectly separating costless nash equilibrium applications to variable rate loan commitments and life insurance contracting are discussed article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

robust financial contracting and the role of venture capitalists we derive a role for inside investors such as venture capitalists in resolving various agency problems that arise in a multistage financial contracting problem absent an inside investor the choice of securities is unlikely to reveal all private information and overinvestment may occur an inside investor however always makes optimal investment decisions if and only if he holds a fixed fraction contract where he always receives a fixed fraction of the project s payoff and finances that same fraction of future investments this contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds in this article we develop a model of financial contracting with multiple investment decisions and show how conflicts of interest and informational asymmetries can be effectively resolved by an inside investor i e an investor who not only provides capital but also works closely with the firm monitors it frequently and is generally very well informed about the firm s prospects and investment opportunities venture capitalists are obvious examples of inside investors and their function has been an important motivation for this article banks especially in japan and germany are also involved in monitoring and can be viewed as playing the role of inside investors in this article we examine the potential benefits of inside investors in a context where there are no restrictions beyond limited liability on the type of financial contracts that can be written we address a basic financial contracting problem involving an entrepreneur who has an idea for a project but does not have sufficient capital to fund it an important assumption is that there are several stages in the project s development and that a decision must be made at each stage whether the project should be continued or abandoned if the project is continued the amount of additional capital to be invested must also be determined we assume that the entrepreneur as an insider observes private information about the project s profitability at each stage this information is not

fast growing small entrepreneurial firms and their venture capital backers an applied principal agent analysis first the empirical background of the u k venture capital industry is developed using a panel of major u k venture capital funds over the period 1988 92 then a framework for applied principal agent analysis is developed focusing on risk management and information under risk management it explores attitude to risk risk sharing and bearing and the effects of risk bearing on effort under information handling it explores information systems information asymmetries between investor venture capitalist and investee entrepreneur and ways of attenuating them and information variance and costs finally the contract between investor and investee is seen as a device for trading risk and information the implications of this trading for risk bearing effort and efficiency are explored the whole analysis is supported by a detailed case study which reflects current practice in the u k venture capital industry the evidence provides striking confirmation of the applicability of the principal agent model to the venture capital financing of hightech ventures

technical change and full employment the result of a major research project which assesses the effects of technical change on employment levels the structure of employment and the nature of work itself this study concludes that social changes must accompany and even precede technical innovation

collateral and competitive equilibria with moral hazard and private information the authors examine equilibrium credit contracts and allocations under different competitivity specifications and explain the economic roles of collateral under these specifications both moral hazard and adverse selection are considered the principal message is that how a competitive equilibrium is conceptualized significantly affects the characterization of equilibrium credit contracts specifically some well known results in the rationing literature are shown to rest delicately on the adopted equilibrium concept two somewhat surprising results emerge first high quality borrowers with unlimited collateral may be priced out of the market despite the bank having idle deposits second high quality borrowers may put up more collateral this paper explores the allocational consequences of alternative credit market competitivity specifications and explains the different economic roles of collateral under these specifications we model banks that lend to borrowers financing projects with payoffs depending on a priori unknown borrower attributes and ex post unobservable borrower actions borrowers are assumed to have unconstrained access to collateral our analysis is based on two concepts of competitive equilibrium under both banks compete in the sense that they earn zero expected profits however under the first concept of equilibrium ti as in jaffee and russell 11 all rents accrue to borrowers whereas under the second concept t2 all rents accrue to depositors as in stiglitz and weiss 17 our research makes two main points first we demonstrate that the manner in which a competitive equilibrium is conceptualized importantly influences the characterization of equilibrium credit allocations specifically one of the findings is that the rationing equilibria of stiglitz and weiss 17 and others should be viewed as rather delicate things in that they are very sensitive to the competitivity specification used for instance

insiders and outsiders in wage determination a firm starts with a group of insiders or seasoned workers there is also a large pool of outsiders who are initially less productive but are transformed into insiders after one period of employment the firm gains from having a large pool of insiders some of whom may be laid off in bad years insiders gain from keeping their numbers small if the insiders set their wage unilaterally they will choose a path that in this extreme case prevents employment of outsiders even if future employment prospects are good if the wage path is set by bilateral bargaining the extra advantage to the firm permits employment of some outsiders in some situations

staging of venture capital investment a real options analysis this paper uses contingent claims analysis to investigate the staging decision of venture capitalist vc in a principal agent framework venture capital investment opportunities are modeled as real options with multiple volatilities and the entrepreneur s incentive is assumed to maximize the probability of getting funded in the next financing round two celebrated formulae in the option pricing literature are generalized to evaluate these real options we find that staging not only gives the vc a waiting option but also mitigates the agency problem of the entrepreneur undertaking too conservative activities moreover we find that the vc tends to stage her investment when the expected growth rate of the venture s market value is lower however the risk free interest rate is not an important factor in the staging decision our model also provides a good explanation for existing empirical evidence on the staging of venture capital investment

venture capital growing pains should the market diet abstract this paper examines recent trends in the venture capital market and current research that explores the impact of these trends high returns in the venture capital industry caused by the surging market for venture backed initial public offerings and recent reductions in the capital gains tax rate have led to dramatic increases in venture capital commitments this rise in fundraising has had dramatic effects on various segments of the venture capital market which may indicate overheating the terms and conditions of venture capital limited partnerships have changed reflecting the growth in demand for venture capital services the share of profits retained by venture capitalists has increased while the restrictiveness of the partnership agreements has eased venture firms are raising substantially larger funds with increasing pressure to find investments thereby moving to later stage investments the price of investments has also responded to the growing desire to increase investment finally institutional investors are increasingly looking internationally for new investment opportunities in venture capital to avoid potential market excesses

venture capital and the macroeconomy i develop a model of venture capital vc intermediation that quantitatively explains central empirical facts about vc activity and can evaluate its macroeconomic relevance the impact of vc backed innovations is significantly larger than suggested by observed aggregate venture exit valuations even after accounting for large exposures to systematic and uninsurable idiosyncratic risks the risk properties of venture capital play a quantitatively important role in both explaining empirical regularities and shaping the value of ventures contributions to economic growth the model is analytically tractable and yields exact solutions despite the presence of matching frictions imperfect risk sharing and endogenous growth received january 16 2018 editorial decision november 7 2018 by editor stijn van nieuwerburgh

bargaining size and return in venture capital funds abstract the terms of an investment by venture capitalists are the result of cooperative bargaining between the project originators owners or entrepreneurs and the financiers this study examines conditions under which bargains can be consummated the nature of the bargains and the way in which bargains are both influenced by venture fund size and also contribute to a theory of fund size as much as possible the theory of fund size and earnings is related to required rate of return concepts with the objective of explaining relative variations in the value of venture capital funds and of incorporating such investments within the general body of finance theory the most basic form of contract is a simple bilateral bargain between owners and fund managers with the shares of financing and earnings as the bargaining variables agency and other considerations can be factored into the resulting project value to be financed and partitioned an edgeworth box construction is used to establish the efficient pareto optimal set as the contract curve the two endpoints of the contract curve correspond respectively to the monopoly solution where there is one fund and many owners and to the competitive solution the nash bargaining solution of game theory can also be exhibited within this framework although we are careful to remain agnostic about whether or not this constitutes the only or even the best solution a first requirement is that some basis for agreement exists so that mutually beneficial bargains can actually be struck conditions most favorable to existence arise where 1 owners who cannot properly diversify their own investments are more risk averse or else suffer from some other financing impediment or 2 owners are more optimistic than fund managers on the prospects for the project fund size operating via the cost of capital can also affect the existence of solutions given that contracting is mutually beneficial the precise terms depend upon the relative bargaining power of funds versus owners this may depend upon required rates of return it also depends upon market structure the environment may be more conducive to monopoly surplus if search impediments exist for owners as they might for technological projects or if the market is in an early stage of development bargains are often asymmetric wherein the fund derives a higher share of earnings than pro rata with its share of financing fund size and bargaining power are related especially where fund investors or managers rely on the fund for portfolio or internal diversification as opposed to external diversification in which they invest extensively in other assets with internal diversification the fund s cost of capital is size dependent in terms of the number of projects on the books larger funds acquire bargaining power via a lower cost of capital leading to higher rates of actual returns and therefore higher fund value such effects are not present where investors have external diversification because fund returns are generally asymmetric arising from the significant risk of project failures it is sometimes thought that the asymmetry constitutes a factor to be priced as the asymmetry is size dependent this would make the cost of capital size dependent as well however it turns out that the asymmetry is not in fact priced and that standard capm arguments continue to hold thus for external diversification fund size is mainly a matter of economies of scale in administration evaluation and monitoring in all cases fund size can be described in terms of equality at the margin between required and available rates of return and we describe the influences that impinge on both schedules generally speaking the kinds of bargains actually observed as well as the rates of return and variations therein across funds and over time are all consistent with predicted bargaining features they appear also to be consistent with basic finance theory suggesting that special features such as failure to maximize the expected utility of monetary returns are not really needed

the bright and dark side of staging investment performance and the varying motivations of private equity firms previous papers that examined investment decisions by private equity funds are divided on whether staging has a positive or negative effect on returns we believe these opposing views can be reconciled by studying when staging is used during the life of the investment relationship we find that staging has a positive effect on investment returns in the beginning of the investment relationship consistent with the notion that staging helps mitigate information asymmetry however staging appears to be negatively associated with returns when used prior to the exit decision our unique dataset allows us to measure these intertemporal effects precisely

relative wages under decentralized and corporatist bargaining systems in studying the relationship between wage inequality and centralization in collective bargaining we distinguish central from local systems of wage determination by assuming that a central union takes the employment effects of negotiated wages into account whereas unions disregard these effects in decentralized systems two different sources of wage differentials are studied separately i heterogeneous workers with different skills and ii heterogeneous firms with varying levels of economic rent per employee with respect to skill levels the impact of centralization is ambiguous whereas inter firm wage differentials are likely to be lower in corporatist systems

top management compensation and capital structure the interrelationship between top management compensation and the design and mix of external claims issued by a firm is studied the optimal managerial compensation structures depend on not only the agency relationship between shareholders and management but also the conflicts of interests which arise in the other contracting relationships for which the firm serves as a nexus we analyze in detail the optimal management compensation for the cases when the external claims are 1 equity and risky debt and 2 equity and convertible debt in addition to the role of aligning managerial incentives with shareholder interests managerial compensation in a levered firm also serves as a precommitment device to minimize the agency costs of debt the optimal management compensation derived has low pay performance sensitivity with convertible debt instead of straight debt the corresponding optimal managerial compensation has high pay to performance sensitivity a negative relationship between pay performance sensitivity and leverage is derived our results provide a reconciliation of the puzzling evidence of jensen and murphy 1990 with agency theory other testable implications include 1 a relationship between the risk premium in corporate bond yields and top management compensation structures and 2 the announcement effect of adoption of executive stock option plans on bond prices the model yields implications for management compensation in banks and federal deposit insurance reform our results explain the dynamics of top management compensation in firms going through financial distress and reorganization

financial contracting and leverage induced over and under investment incentives this paper investigates the effects of seniority rules and restrictive dividend convenants on the over and under investment incentives associated with risky debt we show that increasing seniority of new debt decreases the incidence of under investment but increases over investment and vice versa under symmetric information the optimal seniority rule is to give new debtholders first claim on a new project without recourse to existing assets i e project financing under asymmetric information the optimal debt contract requires equating the expected return to new debtholders in the default state to the new project s cash flow in the same rate if this is not possible the optimal seniority rule calls for strict subordination of new debt if the expected cash flow in default is small and full seniority if it is large with regard to dividend convenants we show that their effect depends on whether or not dividend payments are conditioned on future investments when they are unconditioned allowing more dividends increases the under investment incentive in contrast conditional dividends decrease the underinvestment incentive and increase the over investment incentive

legal framework quality and success of different types of venture capital investments abstract drawing on an analysis of 8 270 companies from 41 countries i explore the relationship between success of venture capital investments and legal frameworks in the investment countries legal framework quality is related to success but the effect varies with the deal type first the significant and positive relationship between legal framework quality and success is more pronounced for domestic deals than for international deals further investigations suggest that international venture capitalists often exit their portfolio companies abroad particularly when these companies are located in countries with inefficient legal frameworks in addition the results lend support to the view that international venture capitalists have a greater experience and reputation second legal framework quality seems to be more important for success in syndicated than in standalone deals this finding supports the view that a sound legal framework may improve the benefit cost balance of syndication while an inefficient legal framework may tend to increase costs in syndicated deals

localized technological change and efficiency wages across european regional labour markets antonelli c and quatraro f localized technological change and efficiency wages across european regional labour markets regional studies internal labour markets and industrial relations in continental europe are characterized by substantial rigidity of employed labour engendered by the tight conditions of regional labour markets this rigidity affects both the rate and the direction of technological change the increase of wages induces the localized introduction of biased technological change with clear effects on productivity levels the empirical evidence across a sample of european regions confirms the significant role of the changes in wages both on the increase of the output elasticity of labour and on multifactor productivity

on the market for venture capital we propose a theory of the market for venture capital that links the excess return to venture equity to the scarcity of venture capitalists vcs high returns make the vcs more selective and eager to terminate nonperforming ventures because they can move on to new ones the scarcity of vcs enables them to internalize their social value and the competitive equilibrium is socially optimal moreover the bilaterally efficient contract is a simple equity contract we estimate the model for the period 1989 2001 and compute the excess return to venture capital which turns out to be 8 6 percent finally we back out the return of solo entrepreneurs which is increasing in their wealth and ranges between zero and 3 5 percent

information sharing price negotiation and management buy outs of private family owned firms perspectives relating to agency theory information asymmetries and game theory were utilized to explore two outcomes associated with the management buy out mbo or management buy in mbi of former private firms whether information was shared equally between vendors i e family firm owners and purchasers i e mbo i management teams and whether a mutually agreed price was achieved with reference to the themes of company ownership structure governance structure and company objectives several hypotheses were derived survey evidence was gathered from the managers of 114 former private family owned firms located across europe that recently reported an mbo i multiple logistic regression analysis detected that respondents in founded first generation family firms and those reporting a high focus on the strategic importance of the market value increment were more likely to report that information was shared equally between vendors and purchasers respondents reporting no suitable family successor had been identified a high focus on the strategic importance of the market value increment and the involvement of venture capitalists in succession planning were more likely to report that a mutually agreed sale price had been achieved implications for practitioners and researchers are discussed

entrepreneurial ability venture investments and risk sharing a number of issues that relate to the desirability and implications of new venture financing are examined within a principal agent framework that captures the essence of the relationship between entrepreneurs and venture capitalists the model suggests 1 as long as the skill levels of entrepreneurs are common knowledge all will choose to involve venture capital investors since the risk sharing provided by outside participation dominates the agency relationship that is created 2 the less able entrepreneurs will choose to involve venture capitalists whereas the more profitable ventures will be developed without external participation because of the adverse selection problem associated with asymmetric information 3 if a costly signal is available that conveys the entrepreneur s ability some entrepreneurs will invest in such a signal and then sell to investors these entrepreneurs however need not be the more able ones the implications for new venture financing of these and other findings are discussed and illustrated by example

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

the us bankruptcy law and private equity financing empirical evidence the generous personal bankruptcy law in the united states is important to entrepreneurs because failed entrepreneurs can resort to this system to shelter part of their wealth against negative consequences of business failure fan and white journal of law and economics xlvi 543 567 2003 documented that high bankruptcy exemptions provide incentives for entrepreneurs to start own new businesses the partial wealth insurance effect provided by the bankruptcy exemptions also has a significant and negative impact on the entrepreneurs access to bank credits berkowitz and white the rand journal of economics 35 1 69 84 2004 gropp scholz and white the quarterly journal of economics 112 1 217 251 1997 in this article we investigate whether and to what extent the us bankruptcy law has any effect on venture capital vc investment making use of company level information we document that the amount of venture financing received is negatively related to the bankruptcy exemption levels and the number of rounds of financing as well as the number of vc funds involved is negatively associated with bankruptcy exemptions further we report consistent evidences based on state level data with regard to the effects of the us personal bankruptcy law