Special Issue of Külgazdaság Volume 1, No. 2/2015

Overcoming Asymmetric Information in Venture Capital Finance

Theoretical approach and evaluation of Hungarian findings


 Venture capital investors aim to invest in potentially prosperous companies with high- yielding projects, operating in innovative industries. In return for their investments, they gain an ownership stake in their portfolio companies. In addition to providing capital, they also contribute their management expertise and personal network to guarantee the success of the enterprises. Significant value creation can be achieved through the active participation of both the entrepreneur and the investor. In the following research we are committed to exploring mechanisms that facilitate mutual interest and participation of all parties during VC investments. The first part of the research – based on international literature – presents problems emerging during the investments, such as adverse selection and moral hazard situations, and also investigates some of the mechanisms used by the parties for problem solving. The second part of the research presents the results of in-depth interviews conducted with some VC managers of Hungarian VC funds. Findings include the rare use of convertible securities, or the frequent use of staged financing or options connected to certain predefined conditions or sanctions. This study was written following the findings and conclusions of the master thesis Sejla Aman [2014]: Information asymmetry in venture finance.*

Journal of Economic Literature (JEL): D82, D86, G23, G24.

Differences of economic development and ways of cooperation in the Slovak-Hungarian cross-border region


The article gives an overview of economic processes in the Slovak-Hungarian border region. The main conclusions are based on the principal findings of a Slovak- Hungarian cross-border migration project funded by the Hungary-Slovakia Cross- Border Cooperation Programme 2007-2013. According to the authors, economic and welfare differences between the two sides (Western and Eastern parts) of the Slovak-Hungarian border have remained substantial in the post-crisis period. This applies to both the Slovak and the Hungarian border regions. Whilst in the Eastern part, Slovak NUTS III regions are more advanced compared to Hungarian counties, in the Western half of the border, the picture is more differentiated. Losses due to the global crisis could be totally offset in the Western border region; this was only partially true for the Eastern part of the border. The authors study the period from 2008 to 2013 and give a comprehensive analysis on regional differences based on macroeconomic and enterprise data and try to find an explanation for the persistent differences and for the slow progress of economic cooperation.*

Journal of Economic Literature (JEL) code: E01, E66.

Anti-competitive practices, unlevel playing field after the full opening of the postal market


The experiences of full market opening of network services have so far shown an increasing role of competition regulation. The new entrants, trusting in the prohibition of competition restrictions, are trying to compete with incumbent service providers. On the field of postal services as a network service, however, the traditional form of regulation is sectoral regulation. The effective cooperation of the two regulatory regimes is especially important in order to evaluate state aid in line with EU principles. In the course of the regulation both the universal service provider’s financial balance and the gains expected from increased competition must be secured at the same time. The third postal directive restricted the possibility of sectoral regulatory intervention to ensure a universal service, at the same time providing a wider decision-making authority to the regulators in this respect.*

Jour nal of Economic Literature (JEL) kód: K 23, L51, L87.

Enforcement of competition in the energy sector of the European Union


Three  EU  directives  regulating  the  internal  energy  market  of  the  European Union have created the conditions for opening up the market in the energy sector. However, the opening up and liberalization of the market was hindered by the positions and conduct of incumbent companies as well as by acts of intervention in the market by member states, distorting competition. In order to ensure that market  liberalization  is implemented  in  accordance  with  the  directives,  the European Commission has applied competition policy measures and sought to eliminate specific anti-competitive positions through proceedings and rulings. Prior EU procedures initiated for the enforcement of competition were dominated by cases directly affecting the competitive position of companies on the market, and concerned the conduct of those companies, their relative market powers and state aid. Exposing distortions to competition has in recent years been complemented by some new considerations – namely environmental and climate protection – that do not concern the competitive positions of companies. However, in EU procedures aimed at enforcing competition in the energy sector, adoption of these criteria must be harmonised with the requirement of strengthening the single internal market.*

Journal of Economic Literature (JEL) codes: D21, L12, L4.

Legal supplement

Protection of Public and Private Interests in the Rome I Regulation – Observations on the Interpretation of Overriding Mandatory Provisions


This article deals with the role of overriding mandatory provisions in European private international law. It highlights the contradictions inherent in the concept and substance of the legal construct and the difficulties of application. The starting point for definition is the Rome I Regulation, whereas particulars of substance are presented using two closely related decisions (Ingmar and Unamar) of the Court of Justice of the European Union (CJEU) as well as an on-going German case.*

Journal of Economic Literature (JEL) code: K39 – Other Substantive Areas of Law.

Posted in Egyéb