Robust Financial Contracting and the Role of Venture Capitalists

Anat Admati and Paul Pfleiderer

Journal of Finance, 1994, vol. 49, issue 2, 371-402

Abstract: The authors derive a role for inside investors, such as venture capitalists, in resolving various agency problems that arise in a multistage financial contracting problem. Absent an inside investor, the choice of securities is unlikely to reveal all private information and overinvestment may occur. An inside investor, however, always makes optimal investment decisions if and only if he holds a fixed-fraction contract, where he always receives a fixed fraction of the project's payoff and finances that same fraction of future investments. This contract also eliminates any incentives of the venture capitalist to misprice securities issued in later financing rounds. Copyright 1994 by American Finance Association.

Date: 1994
References: Add references at CitEc
Citations: View citations in EconPapers (275)

Downloads: (external link)
http://links.jstor.org/sici?sici=0022-1082%2819940 ... O%3B2-N&origin=repec full text (application/pdf)
Access to full text is restricted to JSTOR subscribers. See http://www.jstor.org for details.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:49:y:1994:i:2:p:371-402

Ordering information: This journal article can be ordered from
http://www.afajof.org/membership/join.asp

Access Statistics for this article

More articles in Journal of Finance from American Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().