Abstract We study how much entrepreneurs value control rights in the context of VC financing. While many entrepreneurs prefer to maintain control, transferring control rights is also central to VC contract design. Through a discrete choice experiment, we show that entrepreneurs have a high willingness to pay, 37% of the equity value of the venture, to avoid giving up control to investors, which we operationalize as giving investors a voting majority. Furthermore, control rights are valued higher than VC value-adding activities. Our findings imply that control considerations in VC contracts may create substantial trade-offs that deter entrepreneurs from VC financing. (JEL G24, L26, G32)

When firms are forced to publicly disclose financial information, credit rating agencies are generally expected to improve their risk assessments. Theory predicts such an information quality effect but also suggests an adverse reputational concerns effect since credit analysts may become increasingly concerned about alleged rating failures. We empirically examine these predictions using a large-scale quasi-natural experiment in Germany, where a new compliance regime required firms to disclose annual financial statements publicly. Consistent with the reputational concerns hypothesis, we find an average increase in credit rating downgrades that is entirely driven by changes in the discretionary assessments of credit analysts rather than changes in firm fundamentals. Following public disclosure regulations, analysts tend to give positive private information less weight in their risk assessments while assigning greater weight to negative public information. A final set of results indicates that professional credit providers recognize that the resulting downgrades are not warranted.