Raising capital from heterogeneous investors
By: Halac, Marina, Ilan, Kremer, and Winter, Eyal
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Material type: 
BookPublisher: The American Economic Review Description: 110(3), Mar, 2020: p.889-921.Subject(s): Investment banking, Venture capital, Brokerage, Ratings and ratings agencies, Capital and ownership structure, Value of firms, Goodwill
In:
The American Economic ReviewSummary: A firm raises capital from multiple investors to fund a project. The project succeeds only if the capital raised exceeds a stochastic threshold, and the firm offers payments contingent on success. We study the firm's optimal unique-implementation scheme, namely the scheme that guarantees the firm the maximum payoff. This scheme treats investors differently based on size. We show that if the distribution of the investment threshold is log-concave, larger investors receive higher net returns than smaller investors. Moreover, higher dispersion in investor size increases the firm's payoff. Our analysis highlights strategic risk as an important potential driver of inequality. – Reproduced
| Item type | Current location | Call number | Vol info | Status | Date due | Barcode |
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Articles
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Indian Institute of Public Administration | 110(3), Mar, 2020: p.889-921 | Available | AR123253 |
A firm raises capital from multiple investors to fund a project. The project succeeds only if the capital raised exceeds a stochastic threshold, and the firm offers payments contingent on success. We study the firm's optimal unique-implementation scheme, namely the scheme that guarantees the firm the maximum payoff. This scheme treats investors differently based on size. We show that if the distribution of the investment threshold is log-concave, larger investors receive higher net returns than smaller investors. Moreover, higher dispersion in investor size increases the firm's payoff. Our analysis highlights strategic risk as an important potential driver of inequality. – Reproduced
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