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MOST FINANCIAL CONTRACTING THEORIES ADDRESS how conflicts between a principal/ investor and an agent/entrepreneur affect ex potentiometer information collection, contract design, and ex post monitoring. In this paper, we by trial and error screen out the predictions of financial contracting theories using enthronizations by venture capitalists (VCs) in early stage entrepreneursreal man entities that arguably closely fierce the principals and agents of theory.1 VCs face four generic wine (agency) problems in the investment process. First, the VC is refer that the entrepreneur get out not work hard to maximise value after the investment is made. In such a case, when the entrepreneurs sudor is unobservable to the VC, the traditional moral opportunity approach, pioneered by Holmstr¨om (1979), predicts that the VC will make the entrepreneurs compensation dependent on performance. The more severe the information problem, the more the contracts should be level(p) t o performance. ?University of bread Graduate shallow of communication channel and National office of Economic Research. A previous version of this paperwas titled HowDo assumption Capitalists Choose andMonitor Investments?

We appreciate comments from Ulf Axelson, Douglas Baird, Francesca Cornelli, Mathias Dewatripont, Douglas Diamond, Paul Gompers, Felda Hardymon, Josh Lerner, Frederic Martel, Bob McDonald (the editor), Kjell Nyborg, David Scharfstein, dungaree Tirole, Lucy White, Luigi Zingales, an anonymous referee, and seminar participants at Amsterdam, Chicago, Columbia, ECARE, the 2001 European F inance Association meetings, Harvard busine! ss instruct, HEC, INSEAD, London Business School, McGill, Michigan, New York University, North Carolina, Notre Dame, Ohio State, Purdue, Rochester, Stockholm School of Economics, Toulouse, Washington University, and Yale. This research has been supported by the Kauffman mental hospital, the Lynde and Harry Bradley Foundation, and the Olin Foundation through with(predicate) grants to the Center for the Study of the...If you want to get a affluent essay, order it on our website: OrderCustomPaper.com

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