The Effect of Capital Market Characteristics on the Value of Start-up Firms

Topics:
Decision Analysis
Tags:
Capital Market,
Finance,
Financing Startups,
Investment,
Venture Capital
Source:
Reed Elsevier

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Overview: Article explains the effect of capital market characteristics on the value of start-up firms. The proper study of the article helps the venture capitalists in taking decision the investment issues. It explains an equilibrium model of contracting, bargaining, and search in which the relative scarcity of venture capital affects the bargaining power of entrepreneurs and venture capitalists. This in turn affects the pricing, contracting, and value creation in start-ups. The relative scarcity of venture capital is endogenous and depends on the profitability of venture capital investments, entry costs, and transparency of the venture capital market. Supply and demand conditions also affect the incentives of venture capitalists to screen projects ex ante. It characterize both the short- and long-run dynamics of the venture capital industry, which provides a stylized picture of the Internet boom and bust periods. Read the article to get the details.

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Format: PDF | Size: 608KB | Date: Jun 2003 | Pages: 55

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