This study analyzes how multinational venture capital firms use monitoring and compensation incentives to maximize profits in a global context. I argue that monitoring reduces uncertainty in the traditional principal and agent production scheme, leading to a decrease in the premium paid to incentivize higher agent effort. I test with an ordinal logit fixed effects regression with compensation and monitoring proxies on investment outcome over 349 venture capital firms and 1098 portfolio companies. The results support the hypothesis that monitoring substitutes some of compensation costs regarding the likelihood of portfolio companies going to the next stage of funding, albeit at increasing expense. Furthermore, political stability matters in venture capital firm’s investment performance because host country’s political environment is found to be positively correlated with the success of portfolio companies.
Global and International Studies
Li, Huzhi, "Stick or Carrot? How Multinational Venture Capital Firms Balance Compensation and Monitoring across Political Environments." (2021). Senior Independent Study Theses. Paper 9488.
Bachelor of Arts
Senior Independent Study Thesis
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