Kiel Working Papers, Kiel Institute for World Economics
No 1118:
Comparative Advantages of Public Loan and Public Equity Schemes in Venture Capital Markets
Andrea Schertler
Abstract: Using an agency framework, this paper examines advantages
of offering venture capitalists a choice between public equity and loan
schemes. Both schemes can be used to promote venture capital investments in
hightechnology enterprises since they encourage inexperienced venture
capitalists to accumulate experience. However, under both schemes,
experienced venture capitalists save on management support. This paper
shows that offering venture capitalists a choice between these two schemes
can lead to a positive self-selection. Inexperienced venture capitalists
choose public equity under which they have higher incentives to enter the
market. Experienced venture capitalists choose public loans under which
they have lower incentives to save on their management support.
Keywords: public equity schemes, public loan schemes, venture capital; (follow links to similar papers)
JEL-Codes: D82; G24; G28; L14; (follow links to similar papers)
31 pages, July 2002
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