scholarly journals Model for Design of Portfolio Venture Investment Contract When Taking Moral Hazards into Account

2020 ◽  
Vol 2020 ◽  
pp. 1-6
Author(s):  
L. Yin ◽  
Y. Liu ◽  
Z. Wang
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Marginal Cost ◽  
Venture Capitalist ◽  
Portfolio Investment ◽  
Marginal Benefit ◽  
Moral Hazards ◽  
Hazard Reduction ◽  
Venture Investment ◽  
High Level

Portfolio investment is adopted by the venture capital to diversify those risks involved in project selection, investing or operating so that the venture capitalist can expect a relatively stable income and lower financing risks. Based on the design of portfolio investment contract with unlimited funds developed by Kanniainen and Keuschnigg, and Inderst et al., this article makes a modification and presents a model given the limitation of funds available for the venture capitalist. It is demonstrated that the marginal benefit of efforts paid by the entrepreneurs exceeds the marginal cost, given the limitation of funds available, which will conduce to a high-level engagement of the entrepreneurs. Thus, by adopting the design of renegotiation contract, the venture capitalist can manage to stimulate the entrepreneurs to make efforts, which is to result in moral hazard reduction.

scholarly journals Venture Capital Finance – Eliminating Double Sided Moral Hazards Through Trade-off Between Economic and Behavioural Economic Aspects – A Case Analysis

2021 ◽  
Vol 4 (1) ◽  
Author(s):  
Dhanesh Kumar Khatri
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Case Analysis ◽  
Economic Aspect ◽  
Decision Quality ◽  
Trade Off ◽  
Moral Hazards ◽  
Work Distribution ◽  
Behavioural Economic ◽  
Value Add

Venture capital finance has two aspects, the economic aspect and the behavioural economic aspect. The economic aspect includes issues such as conflict of interest between the entrepreneur and the venture capitalist (VC), asymmetric information, moral hazard, and compensation issues for both the parties. The behavioural economic aspect is related to relational factors such as empathy and a feeling of fairness and trust shown by both the parties.Therefore, while deciding the financer, entrepreneur should consider both relation aspect and value add services of the financier and strike optimal trade-off. The ensuing case analysis has been carried out focusing on elimination of double sided moral hazards through a proper trade-off between economy and behavioural economic theories (aspects).The performance of the venture can be enhanced by balancing both of these theories in practice. An equity distribution that represents economic reward is a source of motivation for both the parties to put optimal efforts towards the success of the venture. This was seen in the case analysis, when the parties perceived the initial equity distribution agreement as fair, the satisfaction level of all the parties increased, leading to the reduction in the possibility of double-sided moral hazard and ensuring the success of the venture. Moreover, the analysis shows that  information sharing and two-way communication increases trust and improves decision quality. It further focusses on how feedback and proper work distribution results in efficiency of performance for each of the stakeholders, leading to reduced probability of double-sided moral hazards. 

scholarly journals FEATURES OF PUBLIC ADMINISTRATION IN SHAPING STRATEGY OF VENTURE INVESTMENT OF BUSINESS ENTERPRISES

2020 ◽  
Vol 6 (4) ◽  
pp. 125-132
Author(s):  
Ivan Parubchak ◽  
Halyna Hrynyshyn
Keyword(s):  
Venture Capital ◽  
Enterprise Management ◽  
High Tech ◽  
Initial Development ◽  
Strategy Of Development ◽  
Venture Investment ◽  
Logical Method ◽  
Business Entities ◽  
High Level ◽  
Structural Methods

The purpose of this study is to define the content of the category “venture investment”, and to establish the relationship between the concepts of “venture investment” and “venture capital”, to analyze the state of venture investment in Ukraine and determine its role in innovative development of the economy, to systematize international experience consider the possibility of its adaptation in Ukraine. Object of research: venture capital in the system of financing innovation processes in the modern economy. The methodological basis of the study is a set of general scientific and special methods of cognition. Methods of analysis and synthesis, generalization and scientific abstraction were used in the formation of the conceptual and categorical apparatus. The analysis of approaches to understanding the essence of venture investment, its components was carried out using dialectical and systemic-structural methods. The application of the historical and logical method, induction and deduction made it possible to study the genesis of the theory of economics and enterprise management, the factors of the strategy of development of venture investment of business entities. Within the framework of the study of the current state of venture investment, calculation and analytical methods of observation, measurement, analysis and comparison are used. Conclusions. Based on the above study, we can assume that venture capital is a combination of financial, human and intellectual resources, which with a high level of risk is invested in the development and implementation of high-tech products of companies that are in their infancy and initial development and are not listed on the stock market and in case of success brings its owner a profit that is much higher than the industry average. Despite the riskiness of investments, venture investments have a number of attractive prospects and advantages. As world experience shows, venture-backed companies are better prepared to innovate, grow faster and create more jobs in the future.

Peer Monitoring, Syndication, and the Dynamics of Venture Capital Interactions: Theory and Evidence

2019 ◽  
Vol 55 (6) ◽  
pp. 1875-1914 ◽  
Author(s):  
Onur Bayar ◽  
Thomas J. Chemmanur ◽  
Xuan Tian
Keyword(s):  
Theoretical Model ◽  
Venture Capital ◽  
Moral Hazard ◽  
Empirical Analysis ◽  
Venture Capitalist ◽  
Value Addition ◽  
Peer Monitoring ◽  
Moral Hazard Problem ◽  
Model Predictions

We develop a theoretical model providing a new rationale for venture capitalist (VC) syndicate formation and empirically test our model predictions. An entrepreneur obtains financing and two different value-adding inputs from a single VC or from two different VCs, each operating in his area of expertise. We characterize the entrepreneur’s equilibrium choice between contracting with a single VC, individually with multiple VCs, or with a VC syndicate. We show that syndicates mitigate VCs’ moral hazard problem in value addition. We also analyze the dynamics of VC syndicate composition. The results of our empirical analysis are consistent with our model’s predictions.

scholarly journals Venture Capital Contracting with Double-Sided Moral Hazard and Fairness Concerns

2018 ◽  
Vol 2018 ◽  
pp. 1-13 ◽  
Author(s):  
Jiajia Chang ◽  
Zhijun Hu
Keyword(s):  
Venture Capital ◽  
Moral Hazard ◽  
Maximization Problem ◽  
Venture Capitalist ◽  
Venture Capitalists ◽  
Constant Elasticity ◽  
Constant Elasticity Of Substitution ◽  
Effort Level ◽  
Fairness Concerns ◽  
Venture Enterprise

The development of new venture enterprise is the result of joint efforts of entrepreneurs and venture capitalists who collaborate based on complementary resources. In this paper, we analyze a venture capital incentive contracting model in which a venture capitalist interacts with an entrepreneur who is risk neutral and fairness concerned, offering him an equity contract. We solve the venture capitalist’s maximization problem in the presence of double-sided moral hazard. Our results show that fairness concerns change the structure of the optimal contract. More importantly, we show that the solution to the contract regarding the optimal share given to the entrepreneur is nonlinear and is a fixed point between 0 and 1. Further, we simulate the model under the assumption that venture project’s revenue is a Constant Elasticity of Substitution (CES) function and obtain the following results. (1) When the two efforts are complementary, the venture capitalist’s effort does not monotonically decrease in the share allocated to the entrepreneur, while the entrepreneur’s effort does not monotonically increase in his share. (2) Relative to the benchmark case where the entrepreneur is fairness neutral, the optimal equity share allocated to the fair-minded entrepreneur is larger than 1/2, and as the degree of efforts complementarity increases, the optimal equity share tends to 60%. In this scenario, for a given efforts substitution parameter, the fair-minded entrepreneur provides a higher effort level than the venture capitalist.

Average cost pricing versus marginal cost pricing under moral hazard

1985 ◽  
Vol 26 (2) ◽  
pp. 135-146 ◽  
Author(s):  
Xavier Freixas ◽  
Jean-Jacques Laffont
Keyword(s):  
Moral Hazard ◽  
Average Cost ◽  
Marginal Cost ◽  
Marginal Cost Pricing

Opening the Black Box of the Venture Capital-Entrepreneur Relationship

2018 ◽  
pp. 110-127
Author(s):  
Olimpia Meglio ◽  
Matteo Rossi ◽  
Arturo Capasso
Keyword(s):  
Venture Capital ◽  
Strategic Management ◽  
Field Study ◽  
Real Time ◽  
Learning Experience ◽  
Black Box ◽  
Venture Capitalist ◽  
Present Evidence ◽  
The Relationship ◽  
Over Time

This chapter aims to explore in-depth the relationship between the venture capitalist and the venture-backed company and account for how this relationship unfolds over time. To achieve this, the authors present evidence from three process case studies. The field study presented in this chapter is partly retrospective and partly in real time and is based on two rounds of focused interviews with the entrepreneurs and the venture capitalist. The findings show that several factors play a role, with confidence in the VC (Venture Capital) being essential to beginning the relationship and trust between the parties being essential to continuing it successfully. This relationship is a learning experience for both parties: while the entrepreneur becomes acquainted with the tools for daily, as well as strategic management, the venture capitalist learns how to effectively scout new attractive business ideas.

THE MANAGEMENT OF VENTURE CAPITAL AS A TYPE OF FINANCIAL RESOURCES: GOALS & OBJECTIVES

2021 ◽  
pp. 174-191
Author(s):  
Tetyana Demchenko ◽  
Keyword(s):  
Venture Capital ◽  
Capital Investment ◽  
World Market ◽  
Real Sector ◽  
Venture Capital Investment ◽  
Venture Investment ◽  
The World ◽  
Capital Financing ◽  
The One ◽  
Venture Business

In the context of Ukraine’s integration into the world market, there is a growing interest in creating a control system for all stages of venture capital activities. The mechanism of effective management of venture activities of an enterprise should become a tool for establishing this system. The system of information flows is of great importance, which provides information to the process of making management decisions on a risky innovative project at a venture capital enterprise. The purpose of the venture business is to make a profit on the invested funds [1]. Unlike simple investment, venture capital is the most risky form of capital investment. However, if the project is successful, venture capital investment is the most profitable. Venture investment is, on the one hand, a way of financing the innovative vector of the economy, on the other, an innovative form of entrepreneurship. The main goal of venture capital financing is that the monetary capital of some entrepreneurs and the intellectual capabilities of others (original ideas or technologies) are combined in the real sector of the economy in order to bring profit to both types of entrepreneurship in a new company.

scholarly journals Evaluating the Performance of the Government Venture Capital Guiding Fund Using the Intuitionistic Fuzzy Analytic Hierarchy Process

2020 ◽  
Vol 12 (17) ◽  
pp. 6908 ◽  
Author(s):  
Jianjun Xu ◽  
Lijie Yu ◽  
Rakesh Gupta
Keyword(s):  
Venture Capital ◽  
Analytic Hierarchy Process ◽  
Analytical Framework ◽  
Fuzzy Analytic Hierarchy Process ◽  
Analysis Model ◽  
Analytic Hierarchy ◽  
Intuitionistic Fuzzy ◽  
The Government ◽  
High Level ◽  
Hierarchy Process

The performance evaluation of the government venture capital guiding fund (GVCGF) has come into focus in the field of venture capital. Most of the existing studies, such as whether the GVCGF has guided social capital to start-up enterprises and has played its due role in the process of enterprise growth and innovation, are all based on relevant work under the framework of econometric analysis. Unlike in these existing studies, we construct the performance analysis model of the GVCGF from four dimensions, including the standardization development of the guidance fund, the risk control ability, and the leverage and the support effects under the framework of a multi-attribute decision-making analysis. Taking a GVCGF project in Ningbo City, China, as an example, we comprehensively evaluate the development performance of the GVCGF using the intuitionistic fuzzy analytic hierarchy process (IFAHP). The results show that the development performance of the GVCGF is at a “relatively high” level. Compared with the traditional analytic hierarchy process (AHP), the IFAHP effectively avoids the false, enlarged influence caused by data subjectivity and evaluation uncertainty. This study provides a feasible analytical framework for the application of the IFAHP in other project performance evaluations.

scholarly journals An empirical examination of moral hazards and adverse selection on PPP projects

2018 ◽  
Vol 16 (6) ◽  
pp. 910-924 ◽  
Author(s):  
De-Graft Owusu-Manu ◽  
David John Edwards ◽  
A.S. Kukah ◽  
Erika Anneli Parn ◽  
Hatem El-Gohary ◽  
...  
Keyword(s):  
Moral Hazard ◽  
Adverse Selection ◽  
Construction Projects ◽  
Accurate Information ◽  
Empirical Examination ◽  
Relative Significance ◽  
Content Type ◽  
Moral Hazards ◽  
Selection Problems ◽  
Research Findings

Purpose Failures of public–private partnership (PPP) projects are often ascribed to the agency problem, which arise under conditions of inadequate and asymmetric information when a principal (the client) hires an agent (the contractor). This paper aims to identify the causes and effects of moral hazard and adverse selection on PPP construction projects using a synthesis of extant literature (to determine key variables) and analysis of survey questionnaire data collected. Design/methodology/approach Mean score ranking was used to rank the causes and effects of moral hazard and adverse selection problems in PPP construction projects. One sample t-test was conducted to establish the relative significance of these variables. Findings Effort dimensions (which are not verifiable), low transfer of risk, lack of accurate information about project conditions, wrong party chosen to execute project and renegotiation of contracts were the most significant causes of moral hazard and adverse selection problems in PPP construction projects. In addition, reduction of competition, high transaction costs, consequences on profitability of project, siphoning of funds and negative implications on enforceability of contract were the most significant effects of moral hazard and adverse selection problems in PPP construction projects. Practical implications Application of these findings will help mitigating moral hazard and adverse selection problems occurring when undertaking PPP construction projects. Originality/value Research findings provide guidance to construction stakeholders in the PPP sector on the different causes and effects of adverse selection and moral hazard. This pioneering study is the first to conduct an empirical assessment of the causes and effects of moral hazard and adverse selection of PPP construction projects in a developing country.

scholarly journals Venture Capital Financing: An Opportunity for Small and Medium Scale Enterprises in Ghana

2014 ◽  
Vol 1 (1) ◽  
pp. 1
Author(s):  
Francis Boadu ◽  
Gabriel Dwomoh ◽  
Sarpong Appiah ◽  
Elizabeth Dwomo-Fokuo
Keyword(s):  
Venture Capital ◽  
Job Creation ◽  
Skills Training ◽  
Venture Capitalist ◽  
Trust Fund ◽  
Business Growth ◽  
Medium Scale ◽  
Business Opportunities ◽  
Capital Financing

The paper aims to increase the understanding of venture capital industry in Ghana by examining the role of venture capital financing in aiding small and medium scale enterprises (SMEs) in Ghana. Using the conventional questionnaires administration and interviews, analysis of data collected from the Venture Capital Trust Fund (VCTF) and SMEs supported by venture capitalist (VCs) revealed that venture capital companies contributes in the area of fresh funds (23.8%), adding value by providing the beneficiaries with skills/training (33.3%), access to business opportunities (26.2%) and advisory services (16.7%). The findings also show that venture capital financing has a positive and statistically significant impact on job creation (33.3%), revenue for VC and SMEs (33.3%), business growth (16.7%) and expansion (16.7%) in a manner consistent with economic expectation.

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