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| Author: | Broughman, B. Fried, J. |
| Title: | Renegotiation of cash flow rights in the sale of VC-backed firms |
| Journal: | Journal of Financial Economics
2010 : MAR, VOL. 95:3, p. 384-399 |
| Index terms: | corporate governance stocks liquidation venture capital companies USA |
| Freeterms: | incomplete contracting |
| Language: | eng |
| Abstract: | It is suggested by incomplete contracting theory that venture capitalist (VC) cash flow rights, inc. liquidation preferences (here as: liq-prfs.), could be subject to renegotiation. Using a hand-collected data set of sales of Silicon Valley firms, it is found that common shareholders sometimes receive payment before VCs' liq-prfs. are satisfied. Yet, such deviations from VCs' cash flow rights tend to be small. It is also found that renegotiation is more likely when governance arrangements, incl. the firm's choice of corporate law, give common shareholders more power to hamper the sale. This study provides support for incomplete contracting theory etc. |
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