Optimal design of venture capital financing contracts: the case of Portuguese, Spanish and German markets
Studies in Economics and Finance
ISSN: 1086-7376
Article publication date: 16 February 2021
Issue publication date: 11 March 2021
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
Citation
Correia, M.d.R. and Meneses, R.F.C. (2021), "Optimal design of venture capital financing contracts: the case of Portuguese, Spanish and German markets", Studies in Economics and Finance, Vol. 38 No. 1, pp. 149-171. https://doi.org/10.1108/SEF-10-2019-0424
Publisher
:Emerald Publishing Limited
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