This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Stage Financing and the Role of Convertible Securities

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Francesca Cornelli (London Business School and CEPR)
Oved Yosha (Tel Aviv University and CEPR)
Abstract

Venture capital financing is characterized by extensive use of convertible securities and stage financing. In a model where a venture capitalist provides staged financing for a project, we illustrate an advantage of convertible debt (or warrants) over a mixture of debt and equity. Essentially, when the venture capitalist retains the option to abandon the project, the entrepreneur has an incentive to engage in window dressing and bias positively the short--term performance of the project, reducing the probability that it will be liquidated. An appropriately designed convertible security prevents such behaviour because window dressing also increases the probability that the venture capitalist will exercise the conversion option becoming the owner of a substantial fraction of the project"s equity. Copyright The Review of Economic Studies Limited 2003

Download Info
To our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.

Publisher Info
Article provided by Blackwell Publishing in its journal The Review of Economic Studies.

Volume (Year): 70 (2003)
Issue (Month): 1 (January)
Pages: 1-32
Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Handle: RePEc:bla:restud:v:70:y:2003:i:1:p:1-32

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0034-6527

For technical questions regarding this item, or to correct its listing, contact: (Christopher F. Baum).

Related research
Keywords:

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Marco Pagano, 2005. "The Modigliani-Miller Theorems: A Cornerstone of Finance," CSEF Working Papers 139, Centre for Studies in Economics and Finance (CSEF), University of Salerno, Italy. [Downloadable!]
  2. Koskinen, Yrjo & Rebello, Michael J. & Wang, Jun, 2006. "Market Coditions and Venture Capitalist Experience in Start-Up Financing," SIFR Research Report Series 45, Swedish Institute for Financial Research. [Downloadable!]
  3. CASAMATTA, Catherine & HARITCHABALET, Carole, 2007. "Competition Between Informed Venture Capitalists for the Financing of Entrepreneurs," IDEI Working Papers 444, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  4. Ouidad Yousfi, 2008. "Optimal Financial Contracts in Leveraged Buy Out: a double-sided moral hazard model," EconomiX Working Papers 2008-17, University of Paris West - Nanterre la Défense, EconomiX. [Downloadable!]
  5. Filippo Ippolito, 2005. "Convertible Preferred Stock in Venture Capital Financing," OFRC Working Papers Series 2005fe12, Oxford Financial Research Centre. [Downloadable!]
  6. Jochen Bigus, . "Staging of Venture Financing, Investor Opportunism, and Patent Law," American Law & Economics Association Annual Meetings 1035, American Law & Economics Association. [Downloadable!]
  7. Carsten Bienz & Julia Hirsch, 2006. "The Dynamics of Venture Capital Contracts," CFS Working Paper Series 2006/11, Center for Financial Studies. [Downloadable!]
    Other versions:
  8. Zsuzsanna Fluck & Kedran Garrison & Stewart C. Myers, 2005. "Venture Capital Contracting and Syndication: An Experiment in Computational Corporate Finance," NBER Working Papers 11624, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Sudipto Bhattacharya & Sergei Guriev, 2004. "Knowledge Disclosure, Patents and Optimal Organization of Research and Development," STICERD - Theoretical Economics Paper Series /2004/478, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE. [Downloadable!]
    Other versions:
  10. Alexander Ljungqvist & Matthew Richardson & Daniel Wolfenzon, 2008. "The Investment Behavior of Buyout Funds: Theory and Evidence," NBER Working Papers 14180, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Georg Gebhardt & Klaus M. Schmidt, 2006. "Conditional Allocation of Control Rights in Venture Capital Finance," Discussion Papers 102, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
    Other versions:
  12. CASAMATTA, Catherine & HARITCHABALET, Carole, 2007. "Experience, Screening and Syndication in Venture Capital Investments," IDEI Working Papers 443, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
  13. Levent Koçkesen & Saltuk Ozerturk, 2007. "Bargaining and exclusivity in a borrower–lender relationship," Review of Economic Design, Springer, vol. 11(1), pages 53-68, June. [Downloadable!] (restricted)
  14. Josh Lerner & Ulrike Malmendier, 2005. "Contractibility and the Design of Research Agreements," NBER Working Papers 11292, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  15. Miglo, A., 2008. "Can Earnings Manipulation Create Value?," Working Papers 2008-3, University of Guelph, Department of Economics. [Downloadable!]
  16. Koskinen, Yrjö & Rebello, Michael & Wang, Jun, 2006. "Venture Capital Financing: The Role of Bargaining Power and the Evolution of Informational Asymmetry," CEPR Discussion Papers 5806, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  17. Hans K. Hvide & Todd Kaplan, 2003. "A Theory of Capital Structure with Strategic Defaults and Priority Violations," Microeconomics 0311001, EconWPA. [Downloadable!]
    Other versions:
  18. Georg Gebhardt, 2006. "A Soft Budget Constraint Explanation for the Venture Capital Cycle," Discussion Papers 173, SFB/TR 15 Governance and the Efficiency of Economic Systems, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich. [Downloadable!]
Statistics
Access and download statistics

Did you know? The RePEc project started in 1997. Its precursor, NetEc, dates back to 1993.

This page was last updated on 2008-9-29.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.