IDEAS home Printed from https://ideas.repec.org/p/wpa/wuwpfi/0404022.html

Financial contracts and contingent control rights

Author

Listed:
  • Jukka Vauhkonen

    (Bank of Finland)

Abstract

According to empirical studies of venture capital finance, the division of control rights between entrepreneur and venture capitalists is often contingent on certain measures of firm performance. If the indicator of the company’s performance (eg earnings before taxes and interest) is low, the venture capital firm obtains full control of the company. If company performance improves, the entrepreneur retains or obtains more control rights. If company performance is very good, the venture capitalist relinquishes most of his control rights. In this article, we extend the incomplete contracting model of Aghion and Bolton to construct a theoretical model that is consistent with these empirical findings.

Suggested Citation

  • Jukka Vauhkonen, 2004. "Financial contracts and contingent control rights," Finance 0404022, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpfi:0404022
    Note: Type of Document - pdf
    as

    Download full text from publisher

    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0404/0404022.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Vauhkonen, Jukka, 2003. "Financial contracts and contingent control rights," Research Discussion Papers 14/2003, Bank of Finland.
    2. Peura, Samu & Jokivuolle, Esa, 2003. "Simulation-based stress testing of banks' regulatory capital adequacy," Research Discussion Papers 4/2003, Bank of Finland.
    3. Takalo, Tuomas & Toivanen, Otto, 2003. "Equilibrium in financial markets with adverse selection," Research Discussion Papers 6/2003, Bank of Finland.
    4. Hasan, Iftekhar & Schmiedel, Heiko, 2003. "Do networks in the stock exchange industry pay off? European evidence," Bank of Finland Research Discussion Papers 2/2003, Bank of Finland.
    5. Rantala, Anssi, 2003. "Labour market flexibility and policy coordination in a monetary union," Research Discussion Papers 11/2003, Bank of Finland.
    6. Granlund, Peik, 2003. "Economic evaluation of bank exit regimes in US, EU and Japanese financial centres," Research Discussion Papers 5/2003, Bank of Finland.
    7. Khiaonarong, Tanai, 2003. "Payment systems efficiency, policy approaches, and the role of the central bank," Research Discussion Papers 1/2003, Bank of Finland.
    8. Leinonen, Harry, 2003. "Restructuring securities systems processing : A blue print proposal for real-time/t+0 processing," Research Discussion Papers 7/2003, Bank of Finland.
    9. Hasan, Iftekhar & Schmiedel, Heiko, 2003. "Do networks in the stock exchange industry pay off? : European evidence," Research Discussion Papers 2/2003, Bank of Finland.
    10. Jyrkönen, Hanna & Paunonen, Heli, 2003. "Card, Internet and mobile payments in Finland," Research Discussion Papers 8/2003, Bank of Finland.
    11. Vauhkonen, Jukka, 2003. "Banks' equity stakes in borrowing firms : A corporate finance approach," Research Discussion Papers 13/2003, Bank of Finland.
    12. Kajanoja, Lauri, 2003. "Money as an indicator variable for monetary policy when money demand is forward looking," Research Discussion Papers 9/2003, Bank of Finland.
    13. George W. Evans & Seppo Honkapohja, 2003. "Friedman's Money Supply Rule vs. Optimal Interest Rate Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 550-566, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Llewellyn, David T. & Mayes, David G., 2003. "The role of market discipline in handling problem banks," Bank of Finland Research Discussion Papers 21/2003, Bank of Finland.
    2. Jukka Vauhkonen, 2004. "Banks' equity stakes in borrowing firms: A corporate finance approach," Game Theory and Information 0404003, University Library of Munich, Germany.
    3. Vauhkonen, Jukka, 2003. "Are adverse selection models of debt robust to changes in market structure?," Research Discussion Papers 28/2003, Bank of Finland.
    4. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    5. Guender, Alfred V., 2003. "Optimal discretionary monetary policy in the open economy: Choosing between CPI and domestic inflation as target variables," Bank of Finland Research Discussion Papers 12/2003, Bank of Finland.
    6. Llewellyn, David T. & Mayes, David G., 2003. "The role of market discipline in handling problem banks," Research Discussion Papers 21/2003, Bank of Finland.
    7. Vauhkonen, Jukka, 2003. "Financial contracts and contingent control rights," Research Discussion Papers 14/2003, Bank of Finland.
    8. Vauhkonen, Jukka, 2003. "Banks' equity stakes in borrowing firms : A corporate finance approach," Research Discussion Papers 13/2003, Bank of Finland.
    9. Guender, Alfred V., 2003. "Optimal discretionary monetary policy in the open economy : Choosing between CPI and domestic inflation as target variables," Research Discussion Papers 12/2003, Bank of Finland.
    10. Kemppainen, Kari, 2003. "Competition and regulation in European retail payment systems," Research Discussion Papers 16/2003, Bank of Finland.
    11. Kemppainen, Kari, 2003. "Competition and regulation in European retail payment systems," Bank of Finland Research Discussion Papers 16/2003, Bank of Finland.
    12. Kari Kemppainen, 2004. "Competition and regulation in European retail payment systems," Microeconomics 0404008, University Library of Munich, Germany.
    13. Vello Vensel, 2004. "Operation of Business Supporting Networks: Evidence from an EU Candidate Country," Working Papers 117, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
    14. George W. Evans & Seppo Honkapohja, 2003. "Friedman's Money Supply Rule vs. Optimal Interest Rate Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 550-566, November.
    15. Kaie Kerem & Vello Vensel, 2005. "Theory and Empirical Evidence of Business Support Networks," Working Papers 129, Tallinn School of Economics and Business Administration, Tallinn University of Technology.
    16. Meixing DAI, 2009. "On the role of money growth targeting under inflation targeting regime," Working Papers of BETA 2009-11, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    17. Eryilmaz, Unal, 2021. "Enflasyonist Koşullarda Türkiye Ekonomisine İlişkin Bir Para Arzı Tahmini [Money Supply Forecast for the Turkish Economy in Inflationary Conditions]," MPRA Paper 111685, University Library of Munich, Germany.
    18. Mikael Bask, 2009. "Optimal monetary policy under heterogeneity in currency trade," Journal of Financial Economic Policy, Emerald Group Publishing, vol. 1(4), pages 338-354, November.
    19. Schabert, Andreas & Stoltenberg, Christian, 2005. "Money Demand and Macroeconomic Stability Revisited," CEPR Discussion Papers 4974, C.E.P.R. Discussion Papers.
    20. Vesala, Timo, 2004. "Asymmetric information in credit markets and entrepreneurial risk taking," Bank of Finland Research Discussion Papers 14/2004, Bank of Finland.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:wpa:wuwpfi:0404022. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: EconWPA The email address of this maintainer does not seem to be valid anymore. Please ask EconWPA to update the entry or send us the correct address (email available below). General contact details of provider: https://econwpa.ub.uni-muenchen.de .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.