Convertible Securities and Venture Capital Finance

Klaus Schmidt ()

No 217, CESifo Working Paper Series from CESifo

Abstract: This paper offers a new explanation for the prevalent use of convertible securities in venture capital finance. Convertible securities can be used to endogenously allocate cash flow rights as a function of the realized quality of the project. This property can be used to mitigate the double moral hazard problem be t ween the entrepreneur and the venture capitalist. It is shown that an optimally designed convertible security outperforms any mixture of debt and equity and that it can induce both parties to invest efficiently. The result is robust to renegotiation and t o changes in the timing of investments and information flows.

Keywords: Convertible securities; venture capital; corporate finance; double moral hazard; incomplete contracts (search for similar items in EconPapers)
Date: 1999
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo_wp217.pdf (application/pdf)

Related works:
Journal Article: Convertible Securities and Venture Capital Finance (2003)
Working Paper: Convertible Securities and Venture Capital Finance (2003)
Working Paper: Convertible Securities and Venture Capital Finance (1999)
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:ces:ceswps:_217

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().