The Stable Matching Theory Of Venture Capital Markets Based On The Perspective Of Contract

In the economic activities, the each agent of the two-sided trade chooses the strategic behaviors to maximize their utilities under the constraint conditions,and those achieve the state that there is no Pareto improvements by the trade,this is the basic paradigm of the modern economics. However, there is a very important presupposition, it is that the traders have chosen their counterparts as their parters from the market sets before their trading behaviors. Thus, how the black box process is going on, and whether there exist a market equilibrium state that traders choose each other exactly? The dissertation tried to answer the issue of choosing each other exactly for venture capital markets: how entrepreneurs and venture capitalists decide to match with their counterparts, considering that they are all heterogeneous individuals. Specifically, in the practice of venture markets, why some certain entrepreneurs are willing to accept and have received the investments from some certain venture capitalists, but not happen that both agents abandon their current partners and match with other counterparts.In the venture capital, entrepreneurs and venture capitalists have private information about their own behaviors, and cause there exist double moral hazard problems. Thus, this dissertation focus on the stable matching on the situations of double moral hazard problems, that expands Gale and Shapley’s(1962) stable matching issue with complete information. Considering the situations were switched from the complete information to double hazard moral problems, there is a question can not be ignored: how to design a contract to handle with the relationship between entrepreneur and venture capitalist under the situations of double hazard moral problems? Only based on the common knowledge of the optimal contract relationship between entrepreneurs and venture capitalists, can I further discuss the stable matching issues under the double hazard moral problems. The contract issues also expand and develop Tirole’s(2001, 2006) common firms’ optimal financing contract analysis frame with(single) hazard moral problems. This dissertation also tries to build a contract designing analysis frameunder double hazard moral problems, to answer the optimal contract relationships between entrepreneurs and venture capitalists.The main works of contract designing are as follows: Based on classical proposal-agent analysis frame, and considering the double-sided moral hazard problems, I introduce a process of bargaining game and a new conception of conditional social surplus, and try to design optimal contracts for venture capital relationships. It shows that there exists optimal contract set between entrepreneur and venture capitalist, and all the optimal contracts achieve an identical secondbest state, in addition to the di?erences in the distribution of outputs. For the optimal contract set, there also exists optimal contract subset for a combination of standard debt and equity(SDE), and even for a constant share equity(CSE)only and only if that the ratio between total social surplus of the second-best state and the total investment is greater than a certain constant. But convertible debt contract is an approximation of some SDE.Based on the common knowledge of optimal contract between entrepreneurs and venture capitalists, I further focus on the issues of venture capital markets’ stable matching structure. This is to say that how they achieve the equilibrium states for the markets matching. Meanwhile, in the dissertation, the bargaining power is also an endogenous problem, together but dependant with the stable matching issue, those of bargaining power and stable matching form the analysis frame with double endogenous e?ects.I further develop a competitive matching model of venture capital market with double moral hazard problems, and answer the two interactive endogenous issues those are how venture capitalists and entrepreneurs achieve the stable matching and how their bargaining power is determined. I find out that:(I)The optimal matching principle between venture capitalists and entrepreneurs is positive assortative matching, this results that stronger ones match with stronger partners, and weaker ones match with weaker traders.(II) The bargaining power is a function of two parties’ output elasticity of e?ort level, higher output elasticity for one party, implies oneself’s stronger bargaining power, and when the output elasticities of two parties is equal, means symmetric bargaining power ofboth parties.At last, I use the data of China Venture Capital Markets, and confirm that the stable matching structure is a type of positive assortative matching, which is a double-sided choices between venture capital and venture enterprises, it means that good venture enterprises match with good venture capital, low quality venture enterprises match with low quality venture capital. I also further investigate how the information characteristics of both venture capitalists and entrepreneurs a?ect the final outputs, which is coincident to stable matching structure in economic connotation. Moreover, for the empirical models of output determination,I also considered the sample selection problems due to markets’ stable matching structure.