Entrepreneurial Financing, Advice, and Agency Costs

Roland Strausz

Journal of Economics & Management Strategy, 2009, vol. 18, issue 3, 845-870

Abstract: We develop a model to study the interplay between advice and agency costs in entrepreneurial financing. We demonstrate a tension between the entrepreneur's motivation for effort and the investor's willingness to finance the project. Advice to the entrepreneur exacerbates this tension. Consequently, optimal financing contracts may involve full, partial, or no advice. With partial advice, information flows need to be controlled carefully. Such control is better when advice and finance are integrated as observed by venture capitalists.

Date: 2009
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Citations: View citations in EconPapers (8)

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https://doi.org/10.1111/j.1530-9134.2009.00231.x

Related works:
Chapter: Entrepreneurial Financing, Advice, and Agency Costs (2007)
Working Paper: Entrepreneurial Financing, Advice, and Agency Costs
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jemstr:v:18:y:2009:i:3:p:845-870

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