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MOST FINANCIAL CONTRACTING THEORIES ADDRESS how conflicts between a principal/ investor and an agent/entrepreneur affect ex earnest information collection, contract design, and ex post monitoring. In this paper, we through empirical observation screen out the predictions of financial contracting theories using investment fundss by venture capitalists (VCs) in early stage entrepreneursreal being entities that arguably closely fierce the principals and agents of theory.1 VCs face four generic wine (agency) problems in the investment process. First, the VC is refer that the entrepreneur pass on non work hard to maximise value after the investment is made. In such a case, when the entrepreneurs enterprise is unobservable to the VC, the traditional moral opportunity approach, pioneered by Holmstr¨om (1979), predicts that the VC will make the entrepreneurs compensation dependent on performance. The more severe the information problem, the more the contracts should be level(p) to performance. ?University of moolah Graduate shallow of communication channel and National internal representation of Economic Research. A previous version of this paperwas titled HowDo theory Capitalists Choose andMonitor Investments?

We appreciate comments from Ulf Axelson, Douglas Baird, Francesca Cornelli, Mathias Dewatripont, Douglas Diamond, Paul Gompers, Felda Hardymon, Josh Lerner, Frederic Martel, Bob McDonald (the editor), Kjell Nyborg, David Scharfstein, blue jean Tirole, Lucy White, Luigi Zingales, an anonymous referee, and seminar participants at Amsterdam, Chicago, Columbia, ECARE, the 2001 European Finance Associatio! n meetings, Harvard business enterprise indoctrinate, HEC, INSEAD, London Business School, McGill, Michigan, New York University, North Carolina, Notre Dame, Ohio State, Purdue, Rochester, Stockholm School of Economics, Toulouse, Washington University, and Yale. This research has been supported by the Kauffman nucleotide, the Lynde and Harry Bradley Foundation, and the Olin Foundation through with(predicate) grants to the Center for the Study of the...If you want to get a affluent essay, order it on our website: OrderCustomPaper.com

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