Stage Financing and the Role of Convertible Debt

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Stage Financing and the Role of Convertible Debt

Author Info

Cornelli, F.
Yosha, O.

Abstract

We have argued that convertible debt can be better than a simple mixture of debt and equity in stage financing situations. When the venture capitalist retains the option to abandon the project if in the medium term he receives a negative signal, the entrepreneur has an incentive to engage in "window dressing" or short-termism , i.e. to bias the signal towards positive values, in order to reduce the probability that the project will be liquidated.

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Paper provided by Tel Aviv in its series Papers with number 23-97.

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Length: 36 pages
Date of creation: 1997
Date of revision:
Handle: RePEc:fth:teavfo:23-97

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Keywords: FINANCIAL MARKET ; DEBT ; ENTERPRISES;

Find related papers by JEL classification:
G30 - Financial Economics - - Corporate Finance and Governance - - - General

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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Other versions:
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Other versions:
- Dewatripont, Mathias & Legros, Patrick & Matthews, Steven A, 2002. "Moral Hazard and Capital Structure Dynamics," CEPR Discussion Papers 3487, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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Pia Weiss, 2002. "A Note on Firms' Strategic Behaviour During an IPO," Microeconomics 0201003, EconWPA. [Downloadable!]
Other versions:
- Pia Weiß & Stefan Mai, 2002. "A Note on Firms' Strategic Behaviour During an IPO," IWP Discussion Paper Series 01/2002, Institute for Economic Policy, Cologne, Germany. [Downloadable!]
Schertler, Andrea, 2001. "Venture Capital in Europe's Common Market: A Quantitative Description," EIFC - Technology and Finance Working Papers 4, United Nations University, Institute for New Technologies. [Downloadable!]
Other versions:
- Andrea Schertler, 2001. "Venture Capital in Europe's Common Market: A Quantitative Description," Kiel Working Papers 1087, Kiel Institute for the World Economy. [Downloadable!]
Steven Matthews, 2002. "Moral Hazard and Capital Structure Dynamics (joint with Mathias Dewatripont and Patrick Legros) Note the special time," Theory workshop papers 357966000000000095, UCLA Department of Economics. [Downloadable!]
Paul Gompers & Josh Lerner, 2001. "The Venture Capital Revolution," Journal of Economic Perspectives, American Economic Association, vol. 15(2), pages 145-168, Spring. [Downloadable!] (restricted)
Hirukawa, Masayuki & Ueda, Masako, 2008. "Venture Capital and Innovation: Which is First?," CEPR Discussion Papers 7090, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
Giacinta CESTONE, 2001. "Venture Capital Meets Contract Theory: Risky Claims or Formal Control?," UFAE and IAE Working Papers 480.01, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC). [Downloadable!]
Other versions:
- Cestone, Giacinta, 2002. "Venture Capital Meets Contract Theory: Risky Claims or Formal Control?," CEPR Discussion Papers 3462, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

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