The Center for Advanced Studies on the Foundations of Law and Finance invites you attend a seminar on
Conflicting Fiduciary Duties and Fire Sales of VC-backed Start-ups
Bo Bian (UBC Sauder School of Business)
Abstract:
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 liquidation 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 VC funds become less likely to exit by fire sales and 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.
Zoom URL
Meeting ID: 965 4576 2523
Password: 870639
