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Post investment demand for accounting information by venture capitalists

Mitchell, Falconer and Reid, Gavin and Terry, Nicholos (1995) Post investment demand for accounting information by venture capitalists. Accounting and Business Research, 25 (99). pp. 186-196. ISSN 0001-4788

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Abstract

The key concepts of principal-agent analysis are utilized to investigate influences on venture capitalists' accounting information requirements as used in their dealings with investees. The findings are based on interviews held with 20 leading venture capitalists, managing funds which together comprise over 3/4 of all UK venture capital funds. The results confirm that a number of key concepts of principal-agent analysis are mirrored in the financial communication process between venture capital investors and their investees. They reveal the venture capitalists' appreciation of the dangers of moral hazard and information asymmetry. It is shown that as a consequence, their information demands are designed to provide safeguards through bonding arrangements. These establish and define an information flow that can be utilized as the basis for frequent and regular monitoring.