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The point-wise convergence of shifted symmetric higher order power method
Angel capitalists exit decisions under information asymmetry: IPO or acquisitions
The School of Economic Mathematics, Southwestern University of Finance and Economics, 611130, WenJiang, Chengdu, China |
Angel capital is an important source of fund for start-ups. Based on the characteristics of angel investment market and the emotional factors between angel investor and entrepreneur, we establish two different principal-agent models to study their impact on different exit mechanisms i.e., IPO and acquisition. We find that: 1) In the case of IPO: as the entrepreneur's emotional factor increases, the optimal incentives decrease; but as the investor's emotional factor increases, the optimal incentives and the efforts increase. 2) When it comes to acquisitions: with the rising of entrepreneur's emotional factor, the optimal incentives decline; but the investor's emotional factor does not affect the optimal incentives and efforts. 3) Under certain conditions, the exit decision is influenced only by the entrepreneur's emotional factor. Moreover, IPO will be the best exit mechanism, only if the entrepreneur's emotional factor is greater than a unique threshold.
References:
[1] |
O. Bayar and T. J. Chemmanur,
IPOs versus acquisitions and the valuation premium puzzle: A theory of exit choice by entrepreneurs and venture capitalists, Journal of Financial and Quantitative Analysis, 46 (2011), 1755-1793.
doi: 10.1017/S0022109011000408. |
[2] |
S. Bonini, V. Capizzi, M. Vallettab and P. Zocchi,
Angel network affiliation and business angels' investment practices, Journal of Corporate Finance, 50 (2018), 592-608.
doi: 10.1016/j.jcorpfin.2017.12.029. |
[3] |
J. C. Brau, B. Francis and N. Kohers,
The choice of IPO versus takeover: Empirical evidence, The Journal of Business, 76 (2003), 583-612.
doi: 10.1086/377032. |
[4] |
D. Cumming,
Contracts and exits in venture capital finance, The Review of Financial Studies, 21 (2008), 1947-1982.
doi: 10.1093/rfs/hhn072. |
[5] |
J. Cvitanić and J. F. Zhang, Contract Theory in Continuous-Time Models, Springer Finance. Springer, Heidelberg, 2013.
doi: 10.1007/978-3-642-14200-0. |
[6] |
P. Daniele, S. Giuffrè and S. Pia,
Competitive financial equilibrium problems with policy interventions, Journal of Industrial and Management Optimization, 1 (2005), 39-52.
doi: 10.3934/jimo.2005.1.39. |
[7] |
F. Englmaier and A. Wambach,
Optimal incentive contracts under inequity aversion, Games and Economic Behavior, 69 (2010), 312-328.
doi: 10.1016/j.geb.2009.12.007. |
[8] |
R. Elitzura and A. Gaviousb,
Contracting, signaling, and moral hazard: A model of entrepreneurs, `angels, ' and venture capitalists, Journal of Business Venturing, 18 (2003), 709-725.
doi: 10.1016/S0883-9026(03)00027-2. |
[9] |
R. Fairchild,
An entrepreneur's choice of venture capitalist or angel-financing: A behavioral game-theoretic approach, Journal of Business Venturing, 26 (2011), 359-374.
doi: 10.1016/j.jbusvent.2009.09.003. |
[10] |
S. He and C. W. Li,
Human capital, management quality, and the exit decisions of entrepreneurial firms, Journal of Financial and Quantitative Analysis, 51 (2016), 1269-1295.
doi: 10.1017/s0022109016000363. |
[11] |
T. Hellmann and V. Thiele,
Friends or foes? The interrelationship between angel and venture capital markets, Journal of Financial Economics, 115 (2015), 639-653.
doi: 10.3386/w20147. |
[12] |
B. Holmstrom and P. Milgrom,
The firm as an incentive system, American Economic Review, 84 (1994), 972-991.
|
[13] |
L. A. Jeng and P. C. Wells,
The determinants of venture capital funding: Evidence across countries, Journal of Corporate Finance, 6 (2000), 241-289.
doi: 10.1016/S0929-1199(00)00003-1. |
[14] |
C. N. V. Krishnan, V. I. Ivanov, R. W. Masulis and A. K. Singh,
Venture capital reputation, post-IPO performance and corporate governance, Journal of Financial and Quantitative Analysis, 46 (2011), 1295-1333.
doi: 10.1017/S0022109011000251. |
[15] |
C. M. Mason and R. T. Harrison,
Closing the regional equity capital gap: The role of informal venture capital, Small Business Economics, 7 (1995), 153-172.
doi: 10.1007/BF01108688. |
[16] |
C. Mitteness, R. Sudek and M. S. Cardon,
Angel investor characteristics that determine whether perceived passion leads to higher evaluations of funding potential, Journal of Business Venturing, 27 (2012), 592-606.
doi: 10.1016/j.jbusvent.2011.11.003. |
[17] |
G. C. Murray and J. Lott,
Have venture capital firms a bias against investment in high technology companies, Research Policy, 24 (1995), 283-299.
|
[18] |
P. Qian and W. Zhang,
Returns on chinese venture capital investment and its determinants, Economic Research Journal (In Chinese), 5 (2007), 78-90.
|
[19] |
Y. Wang and Y. L. Rao,
Principal-agent model of angel investment based on fairness theory, Systems Engineering (In Chinese), 27 (2009), 72-76.
|
[20] |
J. N. Wang, Y. Li and M. H. Liu,
A study on the development tendency and strategies of angel investment in China, Science Research Management (In Chinese), 10 (2015), 161-168.
|
[21] |
X. L. Wang, Y. F. Lan and W. S. Tang,
An uncertain wage contract model for risk-averse worker under bilateral moral hazard, Journal of Industrial and Management Optimization, 13 (2017), 1815-1840.
doi: 10.3934/jimo.2017020. |
show all references
References:
[1] |
O. Bayar and T. J. Chemmanur,
IPOs versus acquisitions and the valuation premium puzzle: A theory of exit choice by entrepreneurs and venture capitalists, Journal of Financial and Quantitative Analysis, 46 (2011), 1755-1793.
doi: 10.1017/S0022109011000408. |
[2] |
S. Bonini, V. Capizzi, M. Vallettab and P. Zocchi,
Angel network affiliation and business angels' investment practices, Journal of Corporate Finance, 50 (2018), 592-608.
doi: 10.1016/j.jcorpfin.2017.12.029. |
[3] |
J. C. Brau, B. Francis and N. Kohers,
The choice of IPO versus takeover: Empirical evidence, The Journal of Business, 76 (2003), 583-612.
doi: 10.1086/377032. |
[4] |
D. Cumming,
Contracts and exits in venture capital finance, The Review of Financial Studies, 21 (2008), 1947-1982.
doi: 10.1093/rfs/hhn072. |
[5] |
J. Cvitanić and J. F. Zhang, Contract Theory in Continuous-Time Models, Springer Finance. Springer, Heidelberg, 2013.
doi: 10.1007/978-3-642-14200-0. |
[6] |
P. Daniele, S. Giuffrè and S. Pia,
Competitive financial equilibrium problems with policy interventions, Journal of Industrial and Management Optimization, 1 (2005), 39-52.
doi: 10.3934/jimo.2005.1.39. |
[7] |
F. Englmaier and A. Wambach,
Optimal incentive contracts under inequity aversion, Games and Economic Behavior, 69 (2010), 312-328.
doi: 10.1016/j.geb.2009.12.007. |
[8] |
R. Elitzura and A. Gaviousb,
Contracting, signaling, and moral hazard: A model of entrepreneurs, `angels, ' and venture capitalists, Journal of Business Venturing, 18 (2003), 709-725.
doi: 10.1016/S0883-9026(03)00027-2. |
[9] |
R. Fairchild,
An entrepreneur's choice of venture capitalist or angel-financing: A behavioral game-theoretic approach, Journal of Business Venturing, 26 (2011), 359-374.
doi: 10.1016/j.jbusvent.2009.09.003. |
[10] |
S. He and C. W. Li,
Human capital, management quality, and the exit decisions of entrepreneurial firms, Journal of Financial and Quantitative Analysis, 51 (2016), 1269-1295.
doi: 10.1017/s0022109016000363. |
[11] |
T. Hellmann and V. Thiele,
Friends or foes? The interrelationship between angel and venture capital markets, Journal of Financial Economics, 115 (2015), 639-653.
doi: 10.3386/w20147. |
[12] |
B. Holmstrom and P. Milgrom,
The firm as an incentive system, American Economic Review, 84 (1994), 972-991.
|
[13] |
L. A. Jeng and P. C. Wells,
The determinants of venture capital funding: Evidence across countries, Journal of Corporate Finance, 6 (2000), 241-289.
doi: 10.1016/S0929-1199(00)00003-1. |
[14] |
C. N. V. Krishnan, V. I. Ivanov, R. W. Masulis and A. K. Singh,
Venture capital reputation, post-IPO performance and corporate governance, Journal of Financial and Quantitative Analysis, 46 (2011), 1295-1333.
doi: 10.1017/S0022109011000251. |
[15] |
C. M. Mason and R. T. Harrison,
Closing the regional equity capital gap: The role of informal venture capital, Small Business Economics, 7 (1995), 153-172.
doi: 10.1007/BF01108688. |
[16] |
C. Mitteness, R. Sudek and M. S. Cardon,
Angel investor characteristics that determine whether perceived passion leads to higher evaluations of funding potential, Journal of Business Venturing, 27 (2012), 592-606.
doi: 10.1016/j.jbusvent.2011.11.003. |
[17] |
G. C. Murray and J. Lott,
Have venture capital firms a bias against investment in high technology companies, Research Policy, 24 (1995), 283-299.
|
[18] |
P. Qian and W. Zhang,
Returns on chinese venture capital investment and its determinants, Economic Research Journal (In Chinese), 5 (2007), 78-90.
|
[19] |
Y. Wang and Y. L. Rao,
Principal-agent model of angel investment based on fairness theory, Systems Engineering (In Chinese), 27 (2009), 72-76.
|
[20] |
J. N. Wang, Y. Li and M. H. Liu,
A study on the development tendency and strategies of angel investment in China, Science Research Management (In Chinese), 10 (2015), 161-168.
|
[21] |
X. L. Wang, Y. F. Lan and W. S. Tang,
An uncertain wage contract model for risk-averse worker under bilateral moral hazard, Journal of Industrial and Management Optimization, 13 (2017), 1815-1840.
doi: 10.3934/jimo.2017020. |









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