Contractual Execution, Strategic Incompleteness and Venture Capital

Dessi, Roberta (2009) Contractual Execution, Strategic Incompleteness and Venture Capital. TSE Working Paper, n. 09-075

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Official URL: http://tse-fr.eu/pub/21921

Abstract

Contractual execution generates hard information, available to the contracting parties, even when contracts are secretly executed. Building on this simple observation, the paper shows that incomplete contracts can be preferred to complete contracts. This is because (i) execution of incomplete contracts reveals less information to outside parties, giving rise to strategic gains; (ii) secretly executed complete contracts could not do better, given the possible strategic uses of the hard information generated by execution of the contract. The key effects at work are explored in the case of financial contracts for innovative start-up companies, providing a rationale for the observed differences in the extent to which venture capital contracts include a variety of contingencies, and for how this varies across industries
and geographically.

Item Type: Monograph (Working Paper)
Language: English
Date: August 2009
JEL codes: D82 - Asymmetric and Private Information
D86 - Economics of Contract - Theory
G24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
L22 - Firm Organization and Market Structure - Markets vs. Hierarchies; Vertical Integration; Conglomerates; Subsidiaries
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 06:01
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:21921
URI: http://publications.ut-capitole.fr/id/eprint/3320

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