Moral hazard in high-risk environments: optimal follow-on investing in venture capital finance

Julius Tennert, Marie Lambert and Hans-Peter Burghof

Venture Capital, 2018, vol. 20, issue 4, 323-338

Abstract: This paper examines the joint effect of environmental risk and moral hazard on staging activity in venture capital financing. We show theoretically and empirically that venture capitalists face a trade-off between (a) deferring and staging investments to engage in learning of the risky venture and avoid downside losses and (b) committing additional funds to update the incentive of the entrepreneur. We describe this trade-off through the timing of follow-on investments and show that highly qualified entrepreneurs demand greater compensation (a larger share) than do less-qualified entrepreneurs in situations of high risk.

Date: 2018
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://hdl.handle.net/10.1080/13691066.2018.1491095 (text/html)
Access to full text is restricted to subscribers.

Related works:
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: https://EconPapers.repec.org/RePEc:taf:veecee:v:20:y:2018:i:4:p:323-338

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/TVEC20

DOI: 10.1080/13691066.2018.1491095

Access Statistics for this article

Venture Capital is currently edited by Colin Mason and Richard T. Harrison

More articles in Venture Capital from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().