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Strategic versus Financial Investors: The Role of Strategic Objectives in Financial Contracting

Author

Listed:
  • Stefan Arping

    (University of Amsterdam)

  • Sonia Falconieri

    (Brunel University)

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.

Suggested Citation

  • Stefan Arping & Sonia Falconieri, 0000. "Strategic versus Financial Investors: The Role of Strategic Objectives in Financial Contracting," Tinbergen Institute Discussion Papers 09-036/2, Tinbergen Institute, revised 20 Apr 2009.
    • Handle: RePEc:tin:wpaper:20090036
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    References listed on IDEAS

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    1. Repullo, Rafael & Suarez, Javier, 1998. "Monitoring, Liquidation, and Security Design," The Review of Financial Studies, Society for Financial Studies, vol. 11(1), pages 163-187.
    2. Mathias Dewatripont & Jean Tirole, 1994. "A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 1027-1054.
    3. Riyanto, Yohanes E. & Schwienbacher, Armin, 2006. "The strategic use of corporate venture financing for securing demand," Journal of Banking & Finance, Elsevier, vol. 30(10), pages 2809-2833, October.
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    Cited by:

    1. Eric Nasica & Dominique Torre & Dominique Dufour, 2011. "Syndication in private equity industry: comparing the strategies of independent and captive venture capitalists," Post-Print halshs-00720785, HAL.
    2. Julia Hirsch & Uwe Walz, 2013. "Why do contracts differ between venture capital types?," Small Business Economics, Springer, vol. 40(3), pages 511-525, April.
    3. Sunny Hahn & Jina Kang, 2017. "Complementary or conflictory?: the effects of the composition of the syndicate on venture capital-backed IPOs in the US stock market," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 44(1), pages 77-102, March.
    4. Dominique Dufour & Eric Nasica & Dominique Torre, 2016. "Clusters et efficacité du capital-risque: une analyse des stratégies différenciées des fonds indépendants et des fonds industriels," GREDEG Working Papers 2016-33, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    5. Dominique Dufour & Eric Nasica & Dominique Torre, 2013. "Rendements financiers versus rendements stratégiques : une comparaison des stratégies de syndication des capital-risqueurs captifs et indépendants," Working Papers halshs-00924748, HAL.
    6. Hong, Jieying, 2020. "The financing of alliance entrepreneurship," Journal of Business Venturing, Elsevier, vol. 35(1).

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    More about this item

    Keywords

    Corporate Venturing; Soft Budget Constraint;

    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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