Renegotiation of cash flow rights in the sale of VC-backed firms

• 成果类型: Article
• 署名作者: Broughman, Brian; Fried, Jesse
• 署名单位: Harvard University; Indiana University System; Indiana University Bloomington
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2009.10.005
• 发表日期: 2010
• 页码: 384-399
• 关键词: venture capital; Preferred stock; Liquidation preferences; corporate governance; Incomplete contracting

摘要

Incomplete contracting theory suggests that venture capitalist (VC) cash flow rights, including liquidation preferences, could be subject to renegotiation. Using a hand-collected data set of sales of Silicon Valley firms, we find common shareholders do sometimes receive payment before VCs' liquidation preferences are satisfied. However, such deviations from VCs' cash flow rights tend to be small. We also find that renegotiation is more likely when governance arrangements, including the firm's choice of corporate law, give common shareholders more power to impede the sale. Our study provides support for incomplete contracting theory, improves understanding of VC exits, and suggests that choice of corporate law matters in private firms. (C) 2009 Elsevier B.V. All rights reserved.