 Optimal contingent payment mechanisms and entrepreneurial financing decisionsMiguel Tavares-Gärtner, Paulo J. Pereira and Elísio Brandão European Journal of Operational Research, 2018, vol. 270, issue 3, 1182-1194 Abstract: We explore Contingent Payment Mechanisms (also known as Contingent Earn-Outs) as a capital raising strategy surrounding Entrepreneurial Financing decisions. Unlike previous literature, which investigates how Contingent Payment Mechanisms are used within the context of mergers and acquisitions, we show how an optimum contingent payment might be designed so that one Entrepreneur and one external equity provider – taken as a Venture Capitalist – are simultaneously and jointly willing to support a given Entrepreneurial Firm and its growth strategy. We show that such optimum contingent payment might be designed for a range of different types of contingent payments, for which we present a novel taxonomy. As closed-form solutions underlay the terms of such optimum contingent payments, we provide a tractable analytical tool for Entrepreneurs and Venture Capitalists to easily contract these Contingent Payment Mechanisms. Keywords: Venture Capital; Entrepreneurial Finance; Real Options; Earn-Outs; Contingent Payments (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:ejores:v:270:y:2018:i:3:p:1182-1194 DOI: 10.1016/j.ejor.2018.04.044 Access Statistics for this article European Journal of Operational Research is currently edited by Roman Slowinski, Jesus Artalejo, Jean-Charles. Billaut, Robert Dyson and Lorenzo Peccati More articles in European Journal of Operational Research from Elsevier |
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