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The Effects of Overconfidence and Fairness on Venture Capitalist Financial Contracting and Performance |
MAI Yi-Yuan, LI Yun-He |
Huazhong University of Science and Technology, Wuhan, China |
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Abstract From behavioral finance, the effects were studied of entrepreneurial overconfidence and fairness on the venture capital financial contracting designed by a self-interested a venture capitalist and its performance under a single-sided moral risk. In the pure principal-agent model, the portion of the optimal equity of an entrepreneur offered by venture capitalist would drop with increasing of entrepreneur’s overconfidence regardless of who are self-interested or inequity-disgusting entrepreneurs; entrepreneur’s efforts would grow with his/her overconfidence rising. In the entrepreneur groups, the welfare would rise as the overconfidence of the entrepreneur grows regardless of who are elf-interested or inequity-disgusting entrepreneurs.
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Received: 17 March 2006
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