Does Reputation Limit Opportunistic Behavior in the VC Industry? Evidence from Litigation against VCs

Vladimir Atanasov*, Vladimir Ivanov, Yekaterina Valerie Litvak

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

80 Scopus citations

Abstract

We examine the role of reputation in limiting opportunistic behavior by venture capitalists towards four types of counterparties: entrepreneurs, investors, other VCs, and buyers of VC-backed startups. Using a hand-collected database of lawsuits, we document that more reputable VCs (i.e., VCs that are older, have more deals and funds under management, and syndicate with larger networks of VCs) are less likely to be litigated. We also find that litigated VCs suffer declines in future business relative to matched peers. These declines are larger for more reputable VCs, and for VCs that are defendants to multiple lawsuits or sued by entrepreneurs.

Original languageEnglish (US)
Pages (from-to)2215-2246
Number of pages32
JournalJournal of Finance
Volume67
Issue number6
DOIs
StatePublished - Dec 2012

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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