ABSTRACT
The key concepts of principal-agent analysis are utilised to investigate influences on venture capitalists’ accounting information requirements as used in their dealings with investees. The findings are based on structured interviews held with 20 leading venture capitalists, managing funds which together comprise over three quarters of all UK venture capital funds. The results confirm that a number of the key concepts of principal-agent analysis are mirrored in Ihc financial communication process between venture capital investors and their investees. They reveal the venture capitalists’ appreciation of the dangers of moral hazard and information asymmetry. It is shown that, as a consequence, their information demands are designed to provide safeguards through bonding arrangements. These establish and define an information flow which can be utilised as the basis for frequent and regular monitoring of the investee.
