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Agency Cost Controlling Problems Of Venture Capital Firms: Analysis Based On The Organization Forms Of Entireprises

Posted on:2006-02-15Degree:MasterType:Thesis
Country:ChinaCandidate:Z D XiaFull Text:PDF
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Venture Capital (VC) is a new kind of investment, the investment course is so complicated that only a few out standing persons are competent enough for it; and the projects invested need for more privacy than other kinds of investments such as Equity Investment, which the investors can ask the company they have invested to reveal information in details. In VC, once the capital has been invested, it will be a long time and can't be with drawled easily. So it is impossible for the ordinary investors themselves to invest and to manage, they have to invite the specialists outside, thus there emerges the "Principal-Agent" relationship and the agency cost at the same time. But on one hand, the market of the VC specialists is monopolized the ordinary investors know little about it; and on the other hand, the investment course is very complicated and it will be a long time but very little information revealed, it is very difficult for the ordinary investors outside to supervise the specialists effectively. In other words, the VC specialists posses much more information compare to the ordinary investors, and they will always damage the ordinary investors' interests if the Adverse Selection and the Moral Hazard exist, as a result, the agency cost of the venture capital is much higher than other general enterprises because the VC firms are controlled more seriously by the inside people.In the world, the United States' VC is the most successful. Investigating their development history, we find it attributes the success to the history, we find it attributes the success to the Limited Partnership and it arrangements, because through the arrangements, the agency, cost has been controlled effectively and the investors' interests guaranteed also. In China, VC began in, 20 years has been pasted, but the development of the VC is not successful. To analyze the reason, it is just because that the agency cost has not been controlled effectively. The financing channels are not smooth, lacking capital sources and majority of the capital comes from the government department; the choice of the VC firm's organizational form is very limited, people can only set up VC firms according to the organizational form of the company; the limitation of the income distribution is unable to encourage the VC specialists effectively; lacking of enough VC specialists who "have both ability and good characters", all of these are the reasons why the agency cost of the VC firms can't be controlled in China.According to all sorts of insufficient in China, we should solve the problemsthrough the following ways: Firstly, we should have special laws for VC to permit the limited partnership existing; Secondly, we should wide the capital sources channels, fostering all kinds of investors especially non-governmental investors; thirdly, we should train a batch of outstanding VC specialists. In addition, there are other effective ways.
Keywords/Search Tags:Limited partnership, Venture capital, Agency cost
PDF Full Text Request
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