Optimal design of venture capital financing contracts: the case of Portuguese, Spanish and German markets

Maria do Rosario Correia and Raquel F. Ch Meneses

Studies in Economics and Finance, 2021, vol. 38, issue 1, 149-171

Abstract: Purpose - This study aims to investigate the use of convertible securities and control rights covenants for a sample of 53 Portuguese, Spanish and German venture capital (VC) firms. Design/methodology/approach - A relatively new methodology in business sciences – a fuzzy set qualitative comparative analysis – that considers both quantitative and qualitative factors is used for obtaining a solution that best fits the empirical data. Findings - The results show that the use of convertible securities is affected by agency predictions, namely, the anticipated severity of double-sided moral hazard problems. On the other hand, a mixed support is provided to the agency predictions regarding the use of control right covenants. The results seem to suggest that control right covenants tend to play a different role from convertible securities in the optimization of contract design for VC-backed investments. Originality/value - Existing literature on VC contract design is extended by providing a cross-border analysis to VC financing decision.

Keywords: Agency costs; Fuzzy set theory; Venture Capital; Convertible securities; Control right covenants (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eme:sefpps:sef-10-2019-0424

DOI: 10.1108/SEF-10-2019-0424

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