Economics at your fingertips  

Financing Entrepreneurs: Optimal Contracts and the Role of Intermediaries

Roberta Dessi

FMG Discussion Papers from Financial Markets Group

Abstract: I study an economy in which entrepreneurs seek financing for long-term projects from intermediaries, who specialise in monitoring, and uninformed investors. Monitoring enables an intermediary to affect investment decisions, and to learn the firms probability of success. Optimal financial contracts are designed to induce both ex ante (choice of investment project) and ex post (decision to continue or liquidate) efficiency. The results can account for some common characteristics of venture capital financing: (a) the fact that venture capitalists are given substantial control rights, (b) the use of convertible securities, (c) the fact the continuation finance is often raised through an IPO, while venture capitalists typically do not exit at this point.

Date: 1999-06
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link) (application/pdf)

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:

Access Statistics for this paper

More papers in FMG Discussion Papers from Financial Markets Group
Bibliographic data for series maintained by The FMG Administration ().

Page updated 2024-07-15
Handle: RePEc:fmg:fmgdps:dp328