A Asymmetric Information Game Analysis On Adverse Selection Between Innovative Enterprise And Venture Capital Company

Recently, based on the knowledge economy, innovation projects and venture capital are growing up with each other:the marketing and industrialization of are influenced by venture capital; meaning the while, in turn, the appreciation of venture capital is influenced by innovation projects. In more than half a century after the birth of venture capital, the mechanism of venture capital has been setting up more and more perfectly. Venture capital has become one of the main funding sources of many innovative enterprises. A lot of practice experience shows that, venture capital plays a very important role in the fields of promoting the innovation transformation, the ability of innovation management and the healthy development of the enterprises and so on. Therefore, getting venture capital is an important economic activity of the innovative enterprise.As the main subject of venture capital, Venture Capital Company has many characteristics that are different from other traditionally financial investment institutions. Among those characteristics, a very important distinction is that the Venture Capital Company provides value-added services as well as venture capital. The level of Venture Capital Company’s ability to provide value-added services is Venture Capital Company’s private information, which is only possessed by Venture Capital Company. The private information leads to the matter of information asymmetry, which will adversely affect the efficiency of the cooperation between innovative enterprises and venture capital companies, which may lead to the problem of adverse selection. Therefore, it is essentially important to select the right Venture Capital Company during the financing period.Based on the angle of innovation of enterprises, in order to safeguard the interests of innovative enterprises, the problem of adverse selection as well as the prevention of the problem is analyzed in this article. There are about thirty thousand words in this article including five main parts, In the first part, the research background, significance of this thesis are briefly introduced and summarized in the beginning part. In the second part, the definition of venture capital, the main participators, the operation process and the investment characteristics are outlined in this part. What’s more, the concept and the performances of information asymmetry are introduced in this part. In the third part, using the basic principles and methods of game theory, a game model of innovative enterprises and venture capital firms is build to analyze the process of the corporation between innovative enterprises and venture capital companies, and estimates about the relevant parameters. In the fourth part, the salvations of the adverse selection are studied with two major theoretical tools called Signaling Model and Screening Model. Finally, the conclusions and shortages of this article, the current situation of this field are summarized. Moreover, points out the future research direction in this field.