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  • 2000
  • Other Unpublished Work

Career Concerns and Staged Investment: Evidence from the Venture Capital Industry

By: Malcolm Baker
  • Format:Print
  • | Language:English
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Abstract

I develop a model in which career concerns lead to inefficient reinvestment decisions. Managers have incentives to inflate interim returns by continuing bad projects and delaying write-offs. In the venture capital industry, the syndication of follow-on investments can help to solve this problem by providing an intermediate, arm's-length valuation. The evidence suggests that young venture firms do use syndication to certify investment quality. Moreover, the gap in quality between syndicated and non-syndicated investments -- measured by ex post outcomes -- is especially high for young venture firms, consistent with the hypothesis that career concerns reduce the efficiency of staged investment.

Keywords

Performance Efficiency; Valuation; Venture Capital; Investment; Decisions; Motivation and Incentives; Quality

Citation

Baker, Malcolm. "Career Concerns and Staged Investment: Evidence from the Venture Capital Industry." 2000. (First draft in 2000.)
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About The Author

Malcolm P. Baker

Finance
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