We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has to pass a sequence of milestones, and there is a chance of terminal failure in each milestone. The investors decide sequentially about the speed of the...

This paper analyzes optimal financial contracts for an incumbent and potential entrant accounting for prospective asset mergers. Exercising a first-mover advantage, the incumbent increases his share of surplus by issuing public debt that appreciates in the event of merger. Incumbent debt reduces...

Joint ventures afford unique opportunities to study how firms assert property rights over jointly used assets because parents clearly delineate control. We argue that ownership allocations trade off investment incentives with control-related inefficiencies. We show how residual control rights...

We develop a two-sided asymmetric information model of asset sales that incorporates the key differences from mergers and allows the information held by each party to be impounded in the transaction. Buyer information is conveyed through a first-stage competitive auction. A seller with...

We investigate optimal capital requirements in a model in which banks decide on their investment in credit scoring systems. Our main result is that regulators should encourage sophisticated banks to keep their asset portfolios safe, while assets with high systematic risk should be concentrated...

This paper compares the success of venture capital investments in the United States and in Europe by analyzing individual venture-backed companies and the value generated within the stage financing process. We document that US venture capitalists generate significantly more value with their...

This paper shows that the pooling of financial resources in an internal capital market may magnify financial distress situations. This effect, which is closely related to the well-known debt overhang phenomenon, arises when there is a illiquidity in one part of the conglomerate, which then...

In a market-based financial system, credit is held by dispersed creditors, and out-of-court renegotiation of debt is more likely to fail because of hold-out problems; in a bank-based system, out-of-court renegotiation stands good chances to succeed. Since out-of-court renegotiation is a...

We consider the provision of venture capital in a dynamic model with multiple research stages, where time and investment needed to meet each benchmark are unknown. The allocation of funds is subject moral hazard. The optimal contract provides for incentive payments linked to attaining the next...

We present a dynamic model of venture capital financing, described as a sequential investment problem with uncertain outcome. Each venture has a critical, but unknown threshold beyond which it cannot progress. If the threshold is reached before the completion of the project, then the project...