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The Effects of Management Disclosure Decisions on Venture Capitalist Investment Screening Judgment
Damon M Fleming,
San Diego State University
ABSTRACT. This study hypothesizes and demonstrates that management decisions about the completeness and form of forecast disclosure interactively affect venture capitalists’ (VCs) investment screening judgments. In an experiment, 62 VCs indicate whether they would recommend conducting due diligence on a new venture. The completeness (more/less) and form (point/range) of management’s financial forecasts are varied in a 2x2 factorial design. Results indicate that VCs make particularly favorable screening judgments when management provides point forecasts accompanied by quantitative data about the components of earnings (i.e., more complete disclosure). Alternatively, VCs make particularly unfavorable screening judgments when management provides point forecasts devoid of such supporting data (i.e., less complete disclosure). These findings suggest VCs use the completeness and form of management’s forecasts as relevant information cues about management’s credibility and uncertainty during screening.
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