This dissertation aims at contribution to the research on the field of corporate finance especially on the venture capital financing. This dissertation comprises of four essays....[ Read more ]
This dissertation aims at contribution to the research on the field of corporate finance especially on the venture capital financing. This dissertation comprises of four essays.
The first essay sets up a theoretical model and makes a numerical analysis on why staged finance and convertibles always go hand in hand in corporate finance. By modeling a staged financing project with renegotiation, the use of convertible securities could obtain the second best and has the trend towards the first best solution.
The second essay gives empirical evidence of whether staged financing is an effective tool to deal with both risks and agency problems in venture capital financing, which is shown in most theoretical literature. To our surprise, staged financing is found to be almost exclusively a device for risk aversion. A lot of evidence of staged financing on alleviating risks but little evidence on coping with agency problems is found.
The third essay examines the rationale of syndication by testing three hypotheses: risk sharing, resource sharing and agency theory. This study pays extra attention to the role of entrepreneurs (ENs) during syndication and the bargaining power balance between venture capitalists (VCs) and ENs. It is shown that syndication is beneficial to both VCs and ENs for the purposes of risk sharing, resource sharing and potentially for alleviating agency problems.
The last essay is a survey on foreign VCs in China, which contribute a major part of venture capital investment in China. Through exploring the development history of Chinese venture capital industry, the difference between domestic and foreign VCs, and the investment structure of foreign VCs, we find that by using an offshore indirect investment structure, many effective mechanisms, which are popular in the west but unavailable or immature under Chinese law, such as staged financing, convertible securities, syndication, equity sharing and board representation, etc, can be widely used.