Advanced Search
MyIDEAS: Login

Managerial Incentives and the Role of Advisors in the Continuous-Time Agency Model

Contents:

Author Info

  • Keiichi Hori
  • Hiroshi Osano

Abstract

We explore a continuous-time agency model with double moral hazard. Using a venture capitalist (VC)--entrepreneur relationship where the VC both supplies costly effort and chooses the optimal timing of the initial public offering (IPO), we show that optimal IPO timing is earlier under double moral hazard than under single moral hazard. Our results also indicate that the manager's compensation tends to be paid earlier under double moral hazard. We derive several comparative static results, notably that IPO timing is earlier when the need for monitoring by the VC is smaller and when the volatility of cash flows is larger. The Author 2013. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hdl.handle.net/10.1093/rfs/hht027
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 26 (2013)
Issue (Month): 10 ()
Pages: 2620-2647

as in new window
Handle: RePEc:oup:rfinst:v:26:y:2013:i:10:p:2620-2647

Contact details of provider:
Postal: Oxford University Press, Journals Department, 2001 Evans Road, Cary, NC 27513 USA.
Fax: 919-677-1714
Email:
Web page: http://www.rfs.oupjournals.org/
More information through EDIRC

Order Information:
Web: http://www4.oup.co.uk/revfin/subinfo/

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Loughran, Tim & Ritter, Jay R, 1995. " The New Issues Puzzle," Journal of Finance, American Finance Association, vol. 50(1), pages 23-51, March.
  2. Schmidt, Klaus M., 2003. "Convertible Securities and Venture Capital Finance," Munich Reprints in Economics 19769, University of Munich, Department of Economics.
  3. Jovanovic, Boyan & Prat, Julien, 0. "Dynamic contracts when agent'’s quality is unknown," Theoretical Economics, Econometric Society.
  4. Steven N. Kaplan & Per Stromberg, 2000. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," NBER Working Papers 7660, National Bureau of Economic Research, Inc.
  5. Spear, Stephen E. & Wang, Cheng, 2005. "When to Fire a CEO: Optimal Termination in Dynamic Contracts," Staff General Research Papers 11443, Iowa State University, Department of Economics.
  6. Zhao, Rui R., 2007. "Dynamic risk-sharing with two-sided moral hazard," Journal of Economic Theory, Elsevier, vol. 136(1), pages 601-640, September.
  7. Thomas Chemmanur & Shan He & Debarshi Nandy, 2008. "The Going Public Decision and the Product Market," Working Papers 08-20, Center for Economic Studies, U.S. Census Bureau.
  8. PETER M. DeMARZO & YULIY SANNIKOV, 2006. "Optimal Security Design and Dynamic Capital Structure in a Continuous-Time Agency Model," Journal of Finance, American Finance Association, vol. 61(6), pages 2681-2724, December.
  9. Schmidt, Klaus M., 1999. "Convertible Securities and Venture Capital Finance," CEPR Discussion Papers 2317, C.E.P.R. Discussion Papers.
  10. Steven N. Kaplan & Per Strömberg, 2008. "Leveraged Buyouts and Private Equity," NBER Working Papers 14207, National Bureau of Economic Research, Inc.
  11. Repullo, R. & Suarez, J., 1998. "Venture Capital Finance: a Security Design Approach," Papers 9804, Centro de Estudios Monetarios Y Financieros-.
  12. He, Zhiguo, 2011. "A model of dynamic compensation and capital structure," Journal of Financial Economics, Elsevier, vol. 100(2), pages 351-366, May.
  13. Kim, Son Ku & Wang, Susheng, 1998. "Linear Contracts and the Double Moral-Hazard," Journal of Economic Theory, Elsevier, vol. 82(2), pages 342-378, October.
  14. Zhiguo He, 2009. "Optimal Executive Compensation when Firm Size Follows Geometric Brownian Motion," Review of Financial Studies, Society for Financial Studies, vol. 22(2), pages 859-892, February.
  15. Sugato Bhattacharyya & Francine Lafontaine, 1995. "Double-Sided Moral Hazard and the Nature of Share Contracts," RAND Journal of Economics, The RAND Corporation, vol. 26(4), pages 761-781, Winter.
  16. Hui Ou-Yang, 2003. "Optimal Contracts in a Continuous-Time Delegated Portfolio Management Problem," Review of Financial Studies, Society for Financial Studies, vol. 16(1), pages 173-208.
  17. Bruno Biais & Thomas Mariotti & Jean-Charles Rochet & Stéphane Villeneuve, 2010. "Large risks, limited liability, and dynamic moral hazard," Working Papers 245707, Institut National de la Recherche Agronomique, France.
  18. Prat, Julien & Jovanovic, Boyan, 2010. "Dynamic Incentive Contracts under Parameter Uncertainty," IZA Discussion Papers 5323, Institute for the Study of Labor (IZA).
  19. Benninga, Simon & Helmantel, Mark & Sarig, Oded, 2005. "The timing of initial public offerings," Journal of Financial Economics, Elsevier, vol. 75(1), pages 115-132, January.
  20. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
  21. Richard E. Romano, 1994. "Double Moral Hazard and Resale Price Maintenance," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 455-466, Autumn.
  22. Thomas Philippon & Yuliy Sannikov, 2007. "Real Options in a Dynamic Agency Model, with Applications to Financial Development, IPOs, and Business Risk," NBER Working Papers 13584, National Bureau of Economic Research, Inc.
  23. Bruno Biais & Thomas Mariotti & Jean-Charles Rochet & StÈphane Villeneuve, 2010. "Large Risks, Limited Liability, and Dynamic Moral Hazard," Econometrica, Econometric Society, vol. 78(1), pages 73-118, 01.
  24. Thomas Hellmann & Manju Puri, 2002. "Venture Capital and the Professionalization of Start-Up Firms: Empirical Evidence," Journal of Finance, American Finance Association, vol. 57(1), pages 169-197, 02.
  25. Hellmann, Thomas, 2006. "IPOs, acquisitions, and the use of convertible securities in venture capital," Journal of Financial Economics, Elsevier, vol. 81(3), pages 649-679, September.
  26. Steven N. Kaplan & Per Strömberg, 2004. "Characteristics, Contracts, and Actions: Evidence from Venture Capitalist Analyses," Journal of Finance, American Finance Association, vol. 59(5), pages 2177-2210, October.
  27. Sung, Jaeyoung, 1997. "Corporate Insurance and Managerial Incentives," Journal of Economic Theory, Elsevier, vol. 74(2), pages 297-332, June.
  28. Biais, Bruno & Mariotti, Thomas & Plantin, Guillaume & Rochet, Jean Charles, 2004. "Dynamic Security Design," CEPR Discussion Papers 4753, C.E.P.R. Discussion Papers.
  29. Yuliy Sannikov, 2008. "A Continuous-Time Version of the Principal-Agent Problem," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 957-984.
  30. Biais, Bruno & Mariotti, Thomas & Plantin, Guillaume & Rochet, Jean-Charles, 2004. "Dynamic Security Design: Convergence to Continuous Time and Asset Pricing Implications," IDEI Working Papers 312, Institut d'Économie Industrielle (IDEI), Toulouse, revised Sep 2006.
  31. Florian Hoffmann & Sebastian Pfeil, 2010. "Reward for Luck in a Dynamic Agency Model," Review of Financial Studies, Society for Financial Studies, vol. 23(9), pages 3329-3345.
  32. Eric Ball & Hsin Hui Chiu & Richard Smith, 2011. "Can VCs Time the Market? An Analysis of Exit Choice for Venture-backed Firms," Review of Financial Studies, Society for Financial Studies, vol. 24(9), pages 3105-3138.
  33. Ahn, Seoungpil & Walker, Mark D., 2007. "Corporate governance and the spinoff decision," Journal of Corporate Finance, Elsevier, vol. 13(1), pages 76-93, March.
  34. Steven N. Kaplan & Per Str�mberg, 2003. "Financial Contracting Theory Meets the Real World: An Empirical Analysis of Venture Capital Contracts," Review of Economic Studies, Oxford University Press, vol. 70(2), pages 281-315.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:oup:rfinst:v:26:y:2013:i:10:p:2620-2647. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Oxford University Press) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.