IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v32y1997i03p269-286_00.html
   My bibliography  Save this article

Optimal Financial Contracts for a Start-Up with Unlimited Operating Discretion

Author

Listed:
  • Ravid, S. Abraham
  • Spiegel, Matthew

Abstract

The model presented here shows that extreme uncertainty between an entrepreneur and potential investors can lead to the exclusive use of equity and riskless debt for small business financing. The paper derives these results without any restrictions on the available contract space, the distribution function governing a project's payoff, or the risk aversion of most potential entrepreneurs. In addition, the model produces predictions regarding the “under-pricing”; of securities to outside financiers, the order in which firms will issue securities, and the relationship between the types of securities a firm will issue and its available collateral.

Suggested Citation

  • Ravid, S. Abraham & Spiegel, Matthew, 1997. "Optimal Financial Contracts for a Start-Up with Unlimited Operating Discretion," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(03), pages 269-286, September.
  • Handle: RePEc:cup:jfinqa:v:32:y:1997:i:03:p:269-286_00
    as

    Download full text from publisher

    File URL: http://journals.cambridge.org/abstract_S0022109000000843
    File Function: link to article abstract page
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Peter M. DeMarzo & Ilan Kremer & Andrzej Skrzypacz, 2005. "Bidding with Securities: Auctions and Security Design," American Economic Review, American Economic Association, vol. 95(4), pages 936-959, September.
    2. Ola Bengtsson & S. Abraham Ravid, 2015. "Location Specific Styles and US Venture Capital Contracting," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 5(03), pages 1-40, September.
    3. Fulghieri, Paolo & Lukin, Dmitry, 2001. "Information production, dilution costs, and optimal security design," Journal of Financial Economics, Elsevier, vol. 61(1), pages 3-42, July.
    4. Werner, Arndt, 2008. "Do Credit Constraints Matter more for College Dropout Entrepreneurs?," MPRA Paper 11867, University Library of Munich, Germany.
    5. Elitzur, Ramy & Gavious, Arieh, 2003. "A multi-period game theoretic model of venture capitalists and entrepreneurs," European Journal of Operational Research, Elsevier, vol. 144(2), pages 440-453, January.
    6. Agathee, Ushad Subadar & Sannassee, Raja Vinesh & Brooks, Chris, 2012. "The underpricing of IPOs on the Stock Exchange of Mauritius," Research in International Business and Finance, Elsevier, vol. 26(2), pages 281-303.
    7. Fluck, Zsuzsanna & John, Kose & Ravid, S. Abraham, 2007. "Privatization as an agency problem: Auctions versus private negotiations," Journal of Banking & Finance, Elsevier, vol. 31(9), pages 2730-2750, September.
    8. Wu, YiLin, 2004. "The choice of equity-selling mechanisms," Journal of Financial Economics, Elsevier, vol. 74(1), pages 93-119, October.
    9. Langberg, Nisan, 2008. "Optimal financing for growth firms," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 379-406, July.
    10. Amina Hamdouni, 2011. "Impact de la syndication sur la performance des entreprises financées par capital-investissement et sur la richesse des parties prenantes," Post-Print hal-00650456, HAL.
    11. Banerjee, Suman & Dai, Lili & Shrestha, Keshab, 2011. "Cross-country IPOs: What explains differences in underpricing?," Journal of Corporate Finance, Elsevier, vol. 17(5), pages 1289-1305.
    12. Houben, Eike & Nippel, Peter, 2001. "The role of credit rationing and collateral in debt financing," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 547, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:32:y:1997:i:03:p:269-286_00. 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: (Keith Waters). General contact details of provider: http://journals.cambridge.org/jid_JFQ .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.