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| dc.title | Selection Advantage of Corporate Venture Capitalists and Its Welfare Effects |
| dc.contributor.author | Hernández, Juan |
| dc.contributor.orgunit | Department of Research and Chief Economist |
| dc.date.available | 2022-02-14T00:02:00 |
| dc.date.issue | 2022-02-14T00:02:00 |
| dc.description.abstract | We develop a theoretical framework for corporate ventures where corporations' know-how gives them an advantage over regular financiers in identifying profitable projects. Corporations and venture capitalists compete to fund entrepreneurs in an environment featuring risk, adverse selection, and limited liability. The expected surplus of each project is independent of the financier and the efficient scale of each project differs among entrepreneurs. We characterize the optimal financial contracts arising in equilibrium and use this characterization to explore the effect corporations' knowledge has in this environment. We show that the presence of corporations in the financial market could be detrimental to welfare when corporations' selection advantage is small. When large, corporate venture capitalists' knowledge reduces the extensive margin inefficiency arising from adverse selection, meaning less socially inefficient projects are enacted. We also show that increasing the depth or breadth of corporations' knowledge leads to higher aggregate gains. |
| dc.format.extent | 35 |
| dc.identifier.doi | http://dx.doi.org/10.18235/0003983 |
| dc.identifier.url | https://publications.iadb.org/publications/english/document/Selection-Advantage-of-Corporate-Venture-Capitalists-and-Its-Welfare-Effects.pdf |
| dc.language.iso | en |
| dc.publisher | Inter-American Development Bank |
| dc.subject | Entrepreneurship |
| dc.subject | Startup |
| dc.subject | Finance |
| dc.subject | Venture Capital |
| dc.subject | Competitiveness |
| dc.subject | Financial Intermediary |
| dc.subject | Knowledge |
| dc.subject | Small Business |
| dc.subject | Bank Loan |
| dc.subject.jelcode | D86 - Economics of Contract: Theory |
| dc.subject.jelcode | O32 - Management of Technological Innovation and R&D |
| dc.subject.jelcode | O36 - Open Innovation |
| dc.subject.jelcode | G39 - Corporate Finance and Governance: Other |
| dc.subject.jelcode | L24 - Contracting Out • Joint Ventures • Technology Licensing |
| dc.subject.keywords | Adverse selection;Entrepreneurial Finance |
| dc.type | Discussion Papers |
| idb.identifier.pubnumber | IDB-DP-00923 |
| idb.operation | RG-K1089 |