 Pecking order of convertible security financing for start-up ventures and overinvestmentThe North American Journal of Economics and Finance, 2023, vol. 68, issue C Abstract: This study develops a parsimonious theoretical model to investigate the pecking order in financing for start-up ventures, especially with convertible securities, under adverse selection where a firm’s investment possibly has a negative value. While the role of convertible securities is limited and the cross-subsidy enables inefficient business in the competitive market, the signaling in relationship financing prevents inefficient investment and convertible securities are useful in situations with more volatile cash flow distributions. Considering the interrelation between competitive markets and relationship financing without investors’ monopolistic positions, signaling with convertible securities from profitable firms is likely to occur when market conditions are uncertain or the economy is stagnant, thereby possibly explaining boom and bust. Keywords: Convertible security; Pecking-order; Adverse selection; Overinvestment; Venture financing (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:ecofin:v:68:y:2023:i:c:s1062940823000980 DOI: 10.1016/j.najef.2023.101975 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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