 Optimal ownership of entrepreneurial firms with rational inattentionYuhua Zhang and Congming Mu Economics Letters, 2021, vol. 209, issue C Abstract: By introducing rational inattention into the setting in which an entrepreneurial firm has a growth option but has to issue equity to raise funds from a venture capitalist, we study the effects of the two parties’ information flow constraint on the investment and ownership allocation. The results show that the larger the information-processing capacity, the later the option exercise and that the advantage of information processing increases the agent’s ownership, generating a negative relationship between management ownership and option investment. The uncertainty in the profit flow enhances the advantage of information processing by allowing the agent with larger capacity to hold a greater ownership, whereas the effects of the long-term mean of profit flow depends on whether it is high or low and the reversion speed of profit flow almost has no contribution to the effects of advantage of information processing on the ownership allocation. Keywords: Rational inattention; Information flow constraint; Growth option; Entrepreneurial finance; Venture capital (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:209:y:2021:i:c:s0165176521003931 DOI: 10.1016/j.econlet.2021.110116 Access Statistics for this article Economics Letters is currently edited by Economics Letters Editorial Office More articles in Economics Letters from Elsevier |
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