Participation Financing as a Solution to the Agency Problem of Perk Consumption in Small Firms

Hua Yu
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Hua Yu: University of Quebec

Journal of Entrepreneurial Finance, 1994, vol. 3, issue 3, 215-227

Abstract: Although it has been suggested that participation financing may allow publicly traded firms to reduce the agency cost of perk consumption, the effect of this type of financing in small firms needs more discussion. The objective of the article is to analyze the small firm effects on the effectiveness of the participation financing in dealing with the agency problem of perk consumption. The participation option gives outside investors less protection against the excessive entrepreneur perk consumption when the firm’s default risk is high. By contrast, the option is more effective in firms with rapid growth or high levels of information asymmetry and therefore high monitoring costs.

Keywords: Participation Financing; Agency Problem; Perk; Perquisite; Small Firm; Small Business (search for similar items in EconPapers)
JEL-codes: G32 L25 (search for similar items in EconPapers)
Date: 1994
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Persistent link: https://EconPapers.repec.org/RePEc:pep:journl:v:3:y:1994:i:3:p:215-227

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