Convertible Securities and Venture Capital Finance

Klaus Schmidt (klaus.schmidt@lrz.uni-muenchen.de)

Munich Reprints in Economics from University of Munich, Department of Economics

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 state of the world and the entrepreneur’s effort. This property can be used to induce the entrepreneur and the venture capitalist to invest efficiently into the project. The result is robust to renegotiation and to changes in the timing of investments and information flows. The model is consistent with the observations that conversion is often automatic and that convertible securities are rarely used by outside investors.

Date: 2003
References: Add references at CitEc
Citations: View citations in EconPapers (195)

Published in Journal of Finance 3 58(2003): pp. 1139-1166

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Convertible Securities and Venture Capital Finance (2003)
Working Paper: Convertible Securities and Venture Capital Finance (1999)
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:lmu:muenar:19769

Access Statistics for this paper

More papers in Munich Reprints in Economics from University of Munich, Department of Economics Ludwigstr. 28, 80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Tamilla Benkelberg (tamilla.benkelberg@econ.lmu.de).