Financing entrepreneurs: optimal contracts and the role of intermediaries

Dessi, Roberta (1999) Financing entrepreneurs: optimal contracts and the role of intermediaries. Financial Markets Group Discussion Papers (328). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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Abstract

I study an economy in which entrepreneurs seek financing for longterm projects from capital-constrained intermediaries, who specialise in monitoring, and uninformed investors. Monitoring enables an intermediary to affect investment decisions, and may confer an informational advantage at the interim stage. Optimal financial contracts are designed to induce both ex ante (choice of investment project) and ex post (decision to continue or liquidate at the interim stage) efficiency, while economising on the use of scarce intermediary capital. Under certain assumptions, a degree of asymmetric information at the interim stage (between informed insiders and uninformed outside investors) makes it possible to improve on contracting possibilities for the symmetric information case. The paper identifies circumstances in which "venture capital" contracts are optimal.

Item Type:	Monograph (Discussion Paper)
Official URL:	https://www.fmg.ac.uk/
Additional Information:	© 1999 The Author(s)
Divisions:	Financial Markets Group
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G0 - General > G00 - General
Date Deposited:	04 Jul 2023 13:21
Last Modified:	14 Sep 2024 04:33
URI:	http://eprints.lse.ac.uk/id/eprint/119120

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