INVESTOR–VENTURE CAPITALIST RELATIONSHIP: ASYMMETRIC INFORMATION, UNCERTAINTY, AND MONITORING

Mondher Cherif and Skander Sraieb
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Mondher Cherif: Université de Reims – LAME, France
Skander Sraieb: Université de Reims – LAME, France

Chapter 17 in Risk Management and Value:Valuation and Asset Pricing, 2008, pp 463-476 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractIn an environment characterized by uncertainty and moral hazard, the chapter studies the role and impact of monitoring on the performance of an investor–venture capitalist relationship. Monitoring (ensured by funds of funds in our model) allows minimization of uncertainty concerning the GP behavior and reduces the risk. The impact of monitoring on both the level of effort provided by the GP and the expected return of LP is determined by mean of modeling the expected return of LP and GP. Our main finding concerns the role of monitoring as a mechanism that allows maximization of the investor's return and limits the opportunistic behavior of the venture capitalist by providing him with incentives to raise his effort level.

Keywords: Risk; Value; Management; Derivatives (search for similar items in EconPapers)
Date: 2008
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