Stage Financing and the Role of Convertible Debt
F. Cornelli and
O. Yosha
Working Papers from Tel Aviv
Abstract:
We have argued that convertible debt can be better than a simple mixture of debt and equity in stage financing situations. When the venture capitalist retains the option to abandon the project if in the medium term he receives a negative signal, the entrepreneur has an incentive to engage in "window dressing" or short-termism , i.e. to bias the signal towards positive values, in order to reduce the probability that the project will be liquidated.
Keywords: FINANCIAL MARKET; DEBT; ENTERPRISES (search for similar items in EconPapers)
JEL-codes: G30 (search for similar items in EconPapers)
Date: 1997
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Persistent link: https://EconPapers.repec.org/RePEc:fth:teavfo:23-97
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