Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/261062 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
WWZ Working Paper No. 2021/09
Publisher: 
University of Basel, Center of Business and Economics (WWZ), Basel
Abstract: 
Banks all over the world show interest in acting as venture capitalists. In this paper, I argue that banks offer venture capital (VC) financing along with traditional (collateralized) loans in response to the natural constraints of the hidden information that they face. Innovative entrepreneurs pursue new technology that promises high return but runs a high risk of failure. The more innovative entrepreneurs also have higher reservation utility. This interaction between type-dependent returns and reservation utility creates a situation where collateral alone is not sufficient to screen entrepreneurs, and the uninformed bank needs an additional screening device. VC fulfils that role.
Subjects: 
Bank
Venture Capital
Collateral
Debt
Screening
JEL: 
G21
G24
D86
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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