Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/155310
Authors: 
Tennert, Julius
Lambert, Marie
Burghof, Hans-Peter
Year of Publication: 
2017
Series/Report no.: 
Hohenheim Discussion Papers in Business, Economics and Social Sciences 02-2017
Abstract: 
Venture projects are fraught with exogenous market risk and endogenous agency risk. We apply a real options perspective to analyze the investment decision of the venture capitalist (VC) in this set-up. The solutions presented are conflictive: the VC reduces his exposure to exogenous risk by delaying investments to wait for informational updates (delay option), but he mitigates endogenous risk by advancing investments to discover entrepreneur's effort. So far, papers focus on the optimal timing of investments considering independence of exogenous and endogenous risk. We show that interdependence of exogenous risk and endogenous risk exists. We find that endogenous risk prompts the VC to accelerate the discovery process when exogenous risk is high, and to abandon the delay option when it is most valuable.
Subjects: 
Venture Capital
Real Option
Agency Cost
Moral Hazard
JEL: 
G11
G12
G24
D53
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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