TY  - UNPD
A1  - Bian, Bo
A1  - Li, Yingxiang
A1  - Nigro, Casimiro A.
T1  - Conflicting fiduciary duties and fire sales of VC-backed start-ups
T2  - LawFin working paper ; No. 35
N2  - This paper studies the interactions between corporate law and VC exits by acquisitions, an increasingly common source of VC-related litigation. We find that transactions by VC funds under liquidity pressure are characterized by (i) a substantially lower sale price; (ii) a greater probability of industry outsiders as acquirers; (iii) a positive abnormal return for acquirers. These features indicate the existence of fire sales, which satisfy VCs' liquidation preferences but hurt common shareholders, leaving board members with conflicting fiduciary duties and litigation risks. Exploiting an important court ruling that establishes the board’s fiduciary duties to common shareholders as a priority, we find that after the ruling maturing VCs become less likely to exit by fire sales and they distribute cash to their investors less timely. However, VCs experience more difficult fundraising ex-ante, highlighting the potential cost of a common-favoring regime. Overall the evidence has important implications for optimal fiduciary duty design in VC-backed start-ups.
T3  - LawFin Working Paper - 35 
KW  - Venture Capital
KW  - Fiduciary Duties
KW  - Trados
KW  - Fire Sales
KW  - Acquisitions
KW  - Liquidation Preferences
KW  - Corporate Governance
Y1  - 2022
UR  - http://publikationen.ub.uni-frankfurt.de/frontdoor/index/index/docId/65176
UR  - https://nbn-resolving.org/urn:nbn:de:hebis:30:3-651763
UR  - https://ssrn.com/abstract=4139724
N1  - The paper has benefited significantly from a fellow visit of Bo Bian at the Center for Advanced Studies on the Foundations of Law and Finance funded by the German Research Foundation (Deutsche Forschungsgemeinschaft, DFG) - project FOR 2774.
IS  - June 9, 2022
PB  - Center for Advanced Studies on the Foundations of Law and Finance, House of Finance, Goethe University
CY  - Frankfurt am Main
ER  -