Book contents
- The Cambridge Handbook of Law and Entrepreneurship in the United States
- The Cambridge Handbook of Law and Entrepreneurship in the United States
- Copyright page
- Contents
- Contributors
- Introduction
- 1 Entrepreneurial Action
- Part I Regulating, Lawmaking, and Entrepreneurial Action
- Part II Governance and Entrepreneurial Action
- 7 Relational Contracting and Business Norms in Entrepreneurial Finance
- 8 Biotech Strategic Alliances in Law and Entrepreneurship
- 9 The Entrepreneurial Business Judgment Rule
- 10 Entrepreneurial Action in Family-Controlled Companies
- Part III Legal Incentives Supporting (and Sometimes Discouraging) Entrepreneurial Action
7 - Relational Contracting and Business Norms in Entrepreneurial Finance
from Part II - Governance and Entrepreneurial Action
Published online by Cambridge University Press: 07 April 2022
- The Cambridge Handbook of Law and Entrepreneurship in the United States
- The Cambridge Handbook of Law and Entrepreneurship in the United States
- Copyright page
- Contents
- Contributors
- Introduction
- 1 Entrepreneurial Action
- Part I Regulating, Lawmaking, and Entrepreneurial Action
- Part II Governance and Entrepreneurial Action
- 7 Relational Contracting and Business Norms in Entrepreneurial Finance
- 8 Biotech Strategic Alliances in Law and Entrepreneurship
- 9 The Entrepreneurial Business Judgment Rule
- 10 Entrepreneurial Action in Family-Controlled Companies
- Part III Legal Incentives Supporting (and Sometimes Discouraging) Entrepreneurial Action
Summary
The literature on financial contracting highlights a risk of opportunism by whichever party controls the firm.1 If the entrepreneur retains control of the business she may pursue private benefits (e.g., the joy of running her own business) at the expense of financial returns. To address this concern, investors may demand control rights as a condition of financing.2 However, this merely flips the problem, since now investors may use such control to behave opportunistically toward the founders or other constituents of the firm.3 In the context of entrepreneurial finance such problems are magnified by the fact that financing contracts are inherently incomplete and cannot specify the firm’s action for every contingency that might arise.4 While legal constraints – such as fiduciary obligations – may mitigate the risk of controlling party opportunism, the law provides an imperfect solution at best and cannot eliminate opportunistic behavior within entrepreneurial finance.5
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- Publisher: Cambridge University PressPrint publication year: 2022