Empirical study of a venture capital relationship

Julia A. Smith (Cardiff Business School, Cardiff University, Cardiff, UK)

Accounting, Auditing & Accountability Journal

ISSN: 0951-3574

Publication date: 1 December 2005



The paper aims to examine five assumptions of agency theory: that both investor and investee make rational decisions; future outcomes are predictable; both act in their own best interests; the investee has an information advantage over the investor; and the investee is work‐ and risk‐averse.


An agency framework is used to analyse the relationship between a venture capital investment house and one of its investees. Empirical evidence is provided on the nature of this relationship. Additional evidence of the post‐investment performance of both parties is provided, to examine whether the contractual arrangements are conducive to good performance.


There is general support for the assumptions of agency theory, and the framework is found to provide a useful basis for analysing the relationship between a venture capital investor and investee.

Research limitations/implications

The paper uses case studies of one investor and one investee, and so is limited by data, coupled with a qualitative analysis. Further quantitative work should use a larger sample and statistical or econometric methods, to support the findings.

Practical implications

The empirical evidence shows that an investor who is alert to such problems as agency theory implies may take steps to control adverse effects, e.g. through improved management accounting systems for monitoring and control.


The paper gives evidence on the internal management practice of venture capital investors and investees, linked to publicly available performance measures. Thus it provides an insight into practice which will be of interest to investors, investees and academic researchers alike.



Smith, J. (2005), "Empirical study of a venture capital relationship", Accounting, Auditing & Accountability Journal, Vol. 18 No. 6, pp. 756-783. https://doi.org/10.1108/09513570510627702

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