Mechanism of residual control rights and special control rights allocation under two kinds ofcontrol structure in venture capital-backed firms: Based on the perspective of financial instruments-supported two-stage investment

Science Research Management ›› 2014, Vol. 35 ›› Issue (5) : 107-117.

Wang Lei

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This paper analyzes the type and benefits of control right in venture capital-backed firms, as well as the corresponding relationship between them. In order to put exclusiveness and specificity of human capital, investment specificity and trust into a unified analysis framework, this paper establishes a control rights shared benefits function. The paper establishes a model of two kinds of control rights allocation in two-stage Investment and two kinds of control structure under the support of financial instruments, and uses the software of Mathematica for data simulation of theory model analysis. The study shows that, because of the difference among benefits of control rights, which obtained by entrepreneurs and investors under two kinds of control structure, the key factors exist significant differences mechanism on residual control right allocation, but the effect on the allocation of specific control right is similarity. The specific performance is that, with the increasing improvement of firm performance and innovation project success probability, there are nonlinear relationship between specificity of human capital, investment specificity and trust with the investor obtains the residual of control right, which is first increased and then decreased in joint control, and first decreased and then increased in contingent control. There are nonlinear relationship between exclusiveness of human capital with the investor obtains the residual of control right, which is first decreased and then increased in joint control, and first increased and then decreased in contingent control.

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venture capital-backed firms / control structure / control rights / financial instruments

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Wang Lei. Mechanism of residual control rights and special control rights allocation under two kinds ofcontrol structure in venture capital-backed firms: Based on the perspective of financial instruments-supported two-stage investment[J]. Science Research Management. 2014, 35(5): 107-117

References

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