|
Post by Sapphire Capital on Aug 27, 2008 0:20:10 GMT 4
Independent Directors and Board Control in Venture Finance Brian J. Broughman University of California, Berkeley - School of Law January 23, 2008 Abstract: The financial contracting literature treats control as an indivisible right held either by a firm's entrepreneurs or by its investors. In contrast, data from VC-backed firms shows that board control is typically shared, with a third-party independent director holding the tie-breaking board seat ('ID-arbitration'). In this article I use a bargaining game similar to final offer arbitration to model a firm's choice of action under ID-arbitration. I show that ID-arbitration can reduce holdup by moderating each party's ex post threat position. Consequently, ID-arbitration can lead to the efficient outcome in circumstances where alternative governance arrangements - entrepreneur control, investor control, or state-contingent control - are either unavailable or likely to lead to suboptimal results. This project has implications for the literature on financial contracting and the theory of the firm. papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1123840_code384176.pdf?abstractid=1123840&mirid=2
|
|