Yang, M;
Zeng, Y;
(2019)
Financing Entrepreneurial Production: Security Design with Flexible Information Acquisition.
The Review of Financial Studies
, 32
(3)
pp. 819-863.
10.1093/rfs/hhy084.
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Abstract
We propose a theory of security design in financing entrepreneurial production, positing that the investor can acquire costly information on the entrepreneur’s project before making the financing decision. When the entrepreneur has enough bargaining power in security design, the optimal security helps incentivize both efficient information acquisition and efficient financing. Debt is optimal when information is not very valuable for production, whereas the combination of debt and equity is optimal when information is valuable. If, instead, the investor has sufficiently strong bargaining power in security design or can acquire information only after financing, equity is optimal
| Type: | Article |
|---|---|
| Title: | Financing Entrepreneurial Production: Security Design with Flexible Information Acquisition |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1093/rfs/hhy084 |
| Publisher version: | http://dx.doi.org/10.1093/rfs/hhy084 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | D82 - Asymmetric and Private Information; Mechanism DesignD86 - Economics of Contract: TheoryG24 - Investment Banking; Venture Capital; Brokerage; Ratings and Ratings AgenciesG32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; GoodwillL26 - Entrepreneurship |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10104739 |
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