Koskinen, YrjoRebello, Michael JWang, Jun2023-05-222016-10-252014-10-252016-06-17https://repository.upenn.edu/handle/20.500.14332/34347We model the natural evolution of private information over the life of a venture capitalist financed project. In the early stages, the entrepreneur is better informed regarding the project, and when the project matures, the venture capitalist has an informational advantage over the entrepreneur. Within this framework, we examine how the venture capitalist's relative bargaining power affects cash flow rights and investment. When the bargaining advantage lies with the entrepreneur, the project may not be screened, and the venture capitalist may acquiesce to excessive initial investment but subsequently terminate the project. Increased venture capitalist bargaining power encourages project screening, attenuates the incentive to overinvest, and reduces the incidence of project termination subsequent to the initial investment. The payoff sensitivity of venture capitalist's financing contract also increases as his bargaining power improves.This is the peer reviewed version of the following article, which has been published in final form at http://dx.doi.org/10.1111/jems.12072. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.FinanceFinance and Financial ManagementArticle