Prior research has argued that convertible preferred equity is the optimal form of venture capital (VC) finance, based on datasets with up to 213 observations from the United States, where unique tax biases exist in favor of convertible preferred. This paper introduces a comparable sample of 3083 Canadian corporate and limited partnership venture financing transactions spanning the years 1991–2000. The data indicate that a variety of securities are used, and convertible preferred equity has not been the most frequent. Empirical tests offer strong support for the proposition that the mix of financing instruments minimizes the costs arising from a set of agency problems.

This paper considers the issue of when venture capitalists (VCs) make a partial, as opposed to a full exit, for the full range of exit vehicles. A full exit for an initial public offerings (IPO) involves a sale of all of the venture capitalist’s holdings within one year of the IPO; a partial exit involves sale of only part of the venture capitalist’s holdings within that period. A full acquisition exit involves the sale of the entire firm for cash; in a partial acquisition exit, the venture capitalist receives (often illiquid) shares in the acquiror firm instead of cash. In the case of a buyback exit (in which the entrepreneur buys out the venture capitalist) or a secondary sale, a partial exit entails a sale of only part of the venture capitalist’s holdings. A partial write-off involves a write down of the investment. We consider the determinants of full and partial venture capital exits for all five exit vehicles. We also perform a number of comparative empirical tests on samples of full and partial exits derived from a survey of Canadian and US venture capital firms. The data offer support to the central hypothesis of the paper: that the greater the degree of information asymmetry between the selling VC and the buyer, the greater the likelihood of a partial exit to signal quality. The data also indicate differences between the US and Canadian venture capital industries, and highlight the impact of legal and institutional factors on exits across countries.

We document a positive effect of product market competition (PMC) on venture capital (VC) staging. Employing large tariff rate reductions as an exogenous shock to PMC, we find that large tariff reductions lead to a greater likelihood of staged financing and a larger number of financing rounds. Cross-sectional analyses reveal that the effect is stronger for entrepreneurial firms that are younger, operate in high-tech and manufacturing industries, or receive investments from less reputable and inexperienced VCs. Our findings are consistent with the notion that by mitigating business uncertainty and survival risk, VC staging acts as a complement to PMC for enhancing entrepreneurial firms’ success.

Drawing on current literature, this study develops a simple external financing model and provides international evidence of the causal effects of corporate governance improvements on trade credit. We introduce an internal governance perspective, hypothesizing that weak internal governance, which fosters managerial agency problems, allows firm managers to misuse trade credit. Specifically, poor governance may lead firms to rely on supplier financing as a substitute for traditional financing when they face financing constraints, a practice the literature argues raises concerns about shifting a firm's financial burdens onto its suppliers. Using a decade of data surrounding governance-enhancing board reforms in 38 countries, our difference-indifferences analyses strongly support these predictions. We find that strengthening board oversight via exogenous reforms reduces firms' reliance on supplier financing. Improved internal governance decreases firms' dependence on supplier financing and limits the manipulation of payables through real earnings management activities, such as inventory overproduction, which affects accounts payable. We also find that the effect of internal governance reforms is most pronounced in countries with stronger external governance mechanisms, suggesting a complementary effect. Additionally, our findings show that enhanced governance leads to better investment decisions and improved firm performance, especially for financially constrained firms and those with high agency costs.

This paper examines the impact of government versus private independent venture capital (VC) backing on the exit performance of entrepreneurial firms. Our analyses are based on the VICO dataset, which avoids the coding problems of VC type in the Thompson Financial SDC dataset. The data indicate that private independent VC-backed companies have better exit performance than government-backed companies. Mixed-syndicates of private-independent and governmental VC investors give rise to a higher (but not statistically different) likelihood of positive exits than that of IVC-backing. Our findings are not influenced by the composition of the syndicate in terms of size and institutional heterogeneity. Our results remain stable after controlling for endogeneity concerns, selection bias, omitted variable bias, legal and institutional differences across countries and over time through several econometric techniques. Moreover, our results are not driven by: i) the holding period of the different types of VC investors; ii) the potential signaling effect of GVC towards IVC investors; iii) the firm's financial structure and net cash-flow ratio; iv) the investment stage; and v) the distance between the VC investor and the target company.

Crowdfunding platform due diligence comprises background checks, site visits, credit checks, cross-checks, account monitoring, and third party proof on funding projects. We evaluate the factors associated with platforms’ compliance expenses, and their due diligence application. We find that due diligence is related to legislation requirement, platform size, and type or complexity of crowdfunding campaigns. In addition, we find that platforms applying due diligence provide more services to project issuers and funders. Furthermore, due diligence is associated with higher percentage of successful campaigns, more fund contributors, and larger amount of capital raised on platforms. Our analyses are supported by platform-level data, covering the period 2014–2017.