Copyright (c) 2009 All rights reserved. http://works.bepress.com/brian_broughman Recent documents in Brian Broughman en-us Sun, 31 May 2009 04:03:27 PDT 3600 http://works.bepress.com/brian_broughman/7 http://works.bepress.com/brian_broughman/7 Thu, 17 Jul 2008 12:40:58 PDT This paper seeks to explain the widespread use of independent directors in the governance of VC-backed firms, and in particular their use as "tie-breakers" on the boards of these firms. Allocating a tie-breaking vote to an unbiased "arbiter" commits the entrepreneur and VCs to more reasonable behavior and can reduce the opportunism that would result if either party were to control the board. Consistent with my theory, data from Silicon Valley startups illustrate several mechanisms entrepreneurs and VCs use to select an unbiased independent director. I conclude by considering implications for corporate law and fiduciary obligations in VC-backed firms. Brian Broughman Financial Contracting http://works.bepress.com/brian_broughman/6 http://works.bepress.com/brian_broughman/6 Thu, 19 Jun 2008 17:27:35 PDT Charitable donations fund social goods that the state and markets undersupply. Despite widespread belief in the importance of private charity, most Americans donate little or nothing. Experiments in behavioral economics show that anonymity, not human nature, causes low contributions. Anonymity poses a particular challenge for charity because of the special character of the obligation. Charity is a disjunctive social norm, meaning the obligation is owed to 'A or B or C or '. Disclosure of each individual's aggregate conduct is necessary for the effectiveness of any disjunctive social norm. To revitalize charity we propose a public registry where each taxpayer can voluntarily disclose the ratio between his charitable giving and income. The registry will clarify the social norm and increase average donations. We extend our analysis to pro bono legal services where a similar registry would encourage attorneys to volunteer. Brian Broughman Financial Contracting Philanthropy http://works.bepress.com/brian_broughman/5 http://works.bepress.com/brian_broughman/5 Wed, 23 Jan 2008 23:42:03 PST The financial contracting literature treats control as an indivisible right held either by a firm's entrepreneurs or by its investors. In contrast, data from VC-backed firms shows that board control is typically shared, with a third-party independent director holding the tie-breaking board seat ('ID-arbitration'). In this article I use a bargaining game similar to final offer arbitration to model a firm's choice of action under ID-arbitration. I show that ID-arbitration can reduce holdup by moderating each party's ex post threat position. Consequently, ID-arbitration can lead to the efficient outcome in circumstances where alternative governance arrangements - entrepreneur control, investor control, or state-contingent control - are either unavailable or likely to lead to suboptimal results. Brian Broughman Financial Contracting http://works.bepress.com/brian_broughman/4 http://works.bepress.com/brian_broughman/4 Sun, 19 Aug 2007 00:19:52 PDT Incomplete contracting theory suggests that VC cash flow rights - including liquidation preferences - may be subject to renegotiation. Using a hand-collected dataset of sales of Silicon Valley firms, we find common shareholders do sometimes receive payment before VCs' liquidation preferences are satisfied. However, such deviations tend to be small. We also find that renegotiation is more likely when governance arrangements, including the firm's choice of corporate law, give common shareholders power to impede the sale. Our study provides support for incomplete contracting theory, improves understanding of VC exits, and suggests that choice of corporate law matters in private firms. Brian Broughman http://works.bepress.com/brian_broughman/1 http://works.bepress.com/brian_broughman/1 Sun, 26 Nov 2006 02:20:09 PST Many Americans donate little or nothing to charity, but according to Robert Cooter and Brian Broughman, our social environment is the cause, not human nature. They propose a small policy change to increase transparency and elicit generosity inspired by experimental evidence about the nature of giving. Robert Cooter