In this paper we study the role of convertible securities in the financing of start-up enterprises when the entrepreneurs are better informed than the venture capitalists (VCs). We demonstrate that for a well-designed contract the conversion ratio of the securities can be used as a signaling...

In a three-period model with active and passive external corporate governance, this paper studies the endogenous decision of debt and equity financiers on the governance mode and intensity over their debtors, as well as how this may affect the funded firms' financing choice. We show that debt...

This paper presents a new explanation for the prevalence of convertible bond in venture capital finance. By modeling two-sided asymmetric information between entrepreneurs and venture capitalists, we prove that convertible bond can implement the optimal contract. The optimal conversion ratio...

The paper presents a model of shareholders' decision to purchase Directors' and Officers' (D&O) insurance for their directors. We consider the tradeoff between the “Governance Enhancing Effect” and the moral hazard effect of D&O insurance and focus on the role of information in determining...

This paper presents a new explanation for the prevalence of convertible security in venture capital finance. By modeling two-sided asymmetric information between entrepreneur and venture capitalist, we prove that convertible security can implement the optimal contract. Comparative statics shows...

This study develops a real options model of corporate divestitures wherein firms choose the optimal timing and conditions for a spin-off or sell-off. [A1] The divestiture timing has an inverse relationship with divestiture costs and a positive relationship with divestiture benefits. The choice...