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Risk-Seeking Corporate Governance

Reynolds Holding

Founders may be reluctant to take on so much risk. Founders typically invest a large percentage of their human and financial capital into their startups and consequently are unable to diversify firm-specific risk. In our model, VCs address the divergence in risk preference by striking an implicit bargain with founders.

Finance 59
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Issuer Liability: Ownership Structure and the Circularity Debate

Reynolds Holding

Most observers agree that they have little to gain from firm-specific activism and have no incentive to reduce fraud because diversification protects them from firm-specific risk. We cannot expect this relationship to change with the rise of institutional investors, especially passive ones following an index.