Strategic versus financial investors: the role of strategic objectives in financial contracting

Arping, S. & Falconieri, S. (2010). Strategic versus financial investors: the role of strategic objectives in financial contracting. Oxford Economic Papers, 62(4), pp. 691-714. doi: 10.1093/oep/gpp038

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Abstract

Strategic investors, such as corporate venture capitalists, engage in the financing of start-up firms to complement their core businesses and to facilitate the internalization of externalities. We argue that while strategic objectives make it more worthwhile for an investor to elicit high entrepreneurial effort, they can also undermine his commitment to penalize poorly performing entrepreneurs by terminating their projects. Based on this tradeoff we develop a theory of financing choice between strategic and financial investors. Our framework provides insights into the design of corporate venturing deals and the choice between corporate venturing and independent venture capital finance.

Item Type: Article
Additional Information: This is a pre-copyedited, author-produced PDF of an article accepted for publication in Oxford Economic Papers following peer review. The version of record Arping, S & Falconieri, S (2010). Strategic versus financial investors: the role of strategic objectives in financial contracting. OXFORD ECONOMIC PAPERS-NEW SERIES, 62(4) pp691-714 is available online at: http://dx.doi.org/10.1093/oep/gpp038
Uncontrolled Keywords: Corporate Venturing, Internalization of Externalities, Soft Budget Constraint
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/12007

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