Using a detailed German data set on venture capital contracts, the authors document that contracts between venture capitalists (VC) and their portfolio firms specify more complete conditions for future financing for firms that do have no suitable outside financing option and therefore lower ex post bargaining power. The authors’ result is consistent with theories of holdup, where complete contracts protect the entrepreneur from expropriation by the financier. Moreover, there is evidence of learning by VCs. Other possible explanations for observed contracts, such as multitasking or coordination costs, instead have little explanation power.

Private equity (PE) managers are required to invest their own money in the funds they manage. We examine the incentive effects of this ownership on the delegated acquisition decision. A simple model shows that PE managers select less risky firms and use more debt, the higher their ownership. We test these predictions for a sample of Norwegian PE funds, using managers’ wealth to capture their relative risk aversion. As predicted, the target company’s cash-flow risk decreases and leverage increases with the manager’s ownership scaled by wealth. Moreover, the overall portfolio risk decreases with ownership, mitigating widespread concerns about excessive risk-taking.

We study incentive contracts used by asset management firms in Norway, focusing on how bonus structures impact performance. The incentive contracts in our sample are heterogeneous, with firms rewarding fund managers based on both quantitative and qualitative targets. We find that higher potential bonuses tied to quantitative metrics, such as the information ratio, lead to better risk-adjusted performance at year-end. Managers at risk of missing bonus thresholds attempt to boost performance through portfolio adjustments, but these efforts backfire, resulting in worse outcomes in the latter part of the year.