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Financing a Portfolio of Projects

Roman Inderst1; Holger M. Mueller2,3; Felix Münnich4

1 London School of Economics and Political Science · 2 Center for Economic and Policy Research · 3 New York University · 4 Boston Consulting Group (United States)

Review of Financial Studies 2007 open access

This article shows that investors financing a portfolio of projects may use the depth of their financial pockets to overcome entrepreneurial incentive problems. Competition for scarce informed capital at the refinancing stage strengthens investors' bargaining positions. And yet, entrepreneurs' incentives may be improved, because projects funded by investors with “shallow pockets” must have not only a positive net present value at the refinancing stage, but one that is higher than that of competing portfolio projects. Our article may help understand provisions used in venture capital finance that limit a fund'sinitial capital and make it difficult to add more capital once the initial venture capital fund is raised.

DOI
10.1093/rfs/hhl038
Volume
20 (4)
Pages
1289-1325
Language
en
Export
BibTeX
Sources
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