Venture Capital and the Use of Convertible Securities and Control Rights Covenants: A Fuzzy Set Approach
Abstract
Although venture capital is considered crucial for promoting economic development and innovation, not much has been done regarding the use of complex financing contracts in venture capital backed investments. In this study we investigate the use of convertible securities and control rights covenants for a sample of 15 Portuguese venture capital firms. We use an innovative methodology - a fuzzy set Qualitative Comparative Analysis - that considers both quantitative and qualitative factors for obtaining a solution that best fits the empirical data. Our results show that the use of convertible securities is affected by the anticipated severity of double-sided moral hazard problems. On the other hand, only a weak support is provided to the agency predictions regarding the use of control right covenants. Interestingly, the results reveal that convertible securities, unlike control rights covenants, are the most apt instruments to reduce costly double-sided incentive problems of a venture capital relationship

This work is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
It is allowed to reuse and remix the journal content in accordance with a CC BY-SA license (free to Share — copy and redistribute the material in any medium or format and Adapt — remix, transform, and build upon the material for any purpose, even commercially). The license lets others remix, tweak, and build upon your work even for commercial purposes, as long as they credit you and license their new creations under the identical terms. All new works based on yours will carry the same license, so any derivatives will also allow commercial use.
European Journal of Business Science and Technology by https://www.ejobsat.cz/ is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
EJOBSAT allows author/s to retain rights to copyright, and other proprietary rights relating to the publication - such as patent rights, the right to use the substance of the publication in future own works (including lectures and books), the right to reproduce the publication for own purposes (not for sale) and the right to self-archive the publication.