How venture capital firms deal with the free-rider problem

Assignment Help Financial Management

Reference no: EM131964190

Figure 1 in Chapter 8 broke down the sources of external financing for non-financial businesses in the U.S. as follows:

Non-bank loans 38%

Bank loans 18%

Bonds 32%

Stocks 11%

Explain why the young founders of Google, Amazon, Facebook, Uber, Airbnb, Netflix turned to venture capital (a non-bank financial intermediary) before they turned to banks for loans or do an IPO to become a public corporation so they can access financing from the bond and stock markets. What does the textbook say about how venture capital firms deal with the free-rider problem? the moral hazard problem?

Use the concepts of adverse selection (lemons problem) and moral hazard (principal-agent problem) faced by banks and stock market investors and explanations for facts # 1, 2, 5, 6, 7, and 8 (refer to PPT slides and/or textbook).

Reference no: EM131964190

Questions Cloud

Euro government bond with negative yield : Euro government bond with negative yield a. How frequently are coupon payments made for Eurobonds?

Two options by calculating the present value of each option : Compare the two options by calculating the present value of each option, assuming the discount rate is 8 percent. Which option is a better deal?

Use the capital asset pricing model : With the beta, we can use the capital asset pricing model to gain insight to the return investors expect.

Self-attribution bias refers to the tendency of people : Self-attribution bias refers to the tendency of people to believe, after an event has occurred, that they predicted it before it happened.

How venture capital firms deal with the free-rider problem : What does the textbook say about how venture capital firms deal with the free-rider problem? the moral hazard problem?

Efficient in the weak-form and efficient in semistrong-form : Assume that the stock market is efficient in the weak-form and efficient in the semistrong-form.

Different ways that banks can reduce interest rate risk : Explain the statement below, then list the different ways that banks can reduce interest rate risk.

The cost of capital represents the weighted average cost : The cost of capital represents the weighted average cost of all sources of long-term financing to the firm,

What is the company net working capital : What is the company’s net working capital?

User Account

All Pages