Study On Encouragement And Restriction Of Double Contracts Arrangement Of Venture Capital In China

Because of bounded rationality and transaction cost, the venture capital contract is an incomplete financial contract. In the dual principal-agent relationships of venture capital, there are information asymmetries between investors & venture capitalists and venture capitalists & entrepreneurs. The behavior of each party, in order to realize maximizing their own utilities, may result in negative effects on the synthetic profit goal of venture capital. Based on the present research achievement on principal-agent relationship of venture capital, the paper, beginning with the internal and external circumstance status during the process of financing and investing of the venture capital, tries to design a double-contracts mechanism to encourage and restrict the behavior of each profited parties, and to offer some ideas and suggestions to make the Chinese double-contracts mechanism more normative and perfect. The paper begins with the analysis of the dual principal-agent relationships of venture capital and the following double contracts. In order to establish a theory base for the contract mechanism, it firstly summarizes the main clue about the contract theory of the modern economics and the particularity of the venture capital contract. Next, the paper, according to the phases of financing and investing of venture capital, analyses the contract arrangements between investors & venture capitalists and venture capitalists & entrepreneurs. In succession, it roundly describes the present status and issues during the process of financing and investing of venture capital in China. And then, the paper, from two respects of constructing the external support system and the internal incentive mechanism of venture capital, propose some corresponding suggestions on arranging effective Chinese contract mechanism of venture capital. Under the present outline of the corporation-financing contract, we can reconstruct the governance structure of Venture Corporation referring to the kernel of the limited partnership contract. Limited partnership suits the characteristics of incomplete contract of the venture capital transaction. Its governance structure solves the problems of agency costs,encouragement and restriction between investors and venture capitalists. In the relationship between venture capitalists and entrepreneurs,venture capitalists adopt some contracts such as multi-stage investment,security design and contingent governance to avoid the risk and protect the benefit of their own. Finally, the paper proposes some policy suggestions to promote the development of venture capital in China.