Venture Capital Financing in Germany The Role of Contractual Arrangements in Mitigating Incentive Conflicts
Using a hand collected sample of contracts and investment proposals from German venture capital financing relationships, we analyze specific incentive conflicts. We apply indirect and direct measures of these problems and extend the direct approach by Kaplan and Stromberg (2004) to a four instead of a three factor analysis. This enables us to distinguish better between hidden action and hold up problems. Moreover, we find several differences between our German sample and the results of US studies that may be caused by the different role of debt finance. Furthermore, the superiority of direct indicators is more pronounced for Germany than for the US.