One way the venture capital firms and the private-equity firms avoid the free-rider problem is byprohibiting the borrowing firm from replacing management.prohibiting the sale of equity in the firm to anyone except the venture capital firms and the private-equity firms.requiring collateral equal to the value of the borrowed funds.prohibiting members from serving on the board of directors.

The free rider problem is a market failure issue which is related to economics. It occurs when their…

Answered: One way the venture capital firms and…

Foundations of Business (MindTap Course List)

6th Edition

ISBN:9781337386920

Author:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Publisher:William M. Pride, Robert J. Hughes, Jack R. Kapoor

Chapter16: Mastering Financial Management

Section: Chapter Questions

Problem 2DQ

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