Entrepreneurial Financing, Advice, and Agency Costs

Roland Strausz ()

Departmental Working Papers from Freie Universität, Fachbereich Wirtschaftswissenschaften

Abstract: This paper studies the interplay between advice and agency costs in entrepreneurial financing. We show that advise may exacerbate agency problems, because the agent may use it at the investor's expense and thereby hurt investors. Depending on the magnitude of the agency problem, optimal financing relationship may induce full, partial, or no advice. Because the trade--off between the positive and negative effect of entrepreneurial advice is delicate, investors need to control the information flow carefully. This explains the dual role of financing and consulting by investors in entrepreneurial financing.

Keywords: optimal advice; agency costs; informed investors; entrepreneurial financing (search for similar items in EconPapers)
JEL-codes: G24 D82 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-fin
View list of references

Downloads: (external link)
http://userpage.fu-berlin.de/%7Elsbester/papers/entrepreneurialfinance.pdf (application/pdf)

Related works:
Journal Article: Entrepreneurial Financing, Advice, and Agency Costs (2009)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:bef:lsbest:022

Access Statistics for this paper

More papers in Departmental Working Papers from Freie Universität, Fachbereich Wirtschaftswissenschaften
Contact information at EDIRC.
Series data maintained by XXX ().