The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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Managerial Incentives for Short‐Term Results: A Comment
Published: 9/1987, Volume: 42, Issue: 4 | DOI: 10.1111/j.1540-6261.1987.tb03932.x | Cited by: 6
MASAKO N. DARROUGH
Moral Hazard and Adverse Selection: The Question of Financial Structure
Published: 6/1986, Volume: 41, Issue: 2 | DOI: 10.1111/j.1540-6261.1986.tb05051.x | Cited by: 66
MASAKO N. DARROUGH, NEAL M. STOUGHTON
This paper looks at the moral hazard and adverse selection problems confronting an entrepreneur offering securities to an uninformed, but competitive financial market. The adverse selection aspect of the problem is generated by the unobservable entrepreneur's ability to transform effort into value. Moral hazard arises because the investment decision is made subsequent to financing. We consider the joint use of both debt and equity, and characterize the equilibrium relation between capital structure and unobservable attributes. It is shown that: (1) investment and financing are not separable; (2) there is an underinvestment problem for “better” firms; and (3) simultaneous use of both debt and equity can resolve this difficulty. We also establish a connection between expected terminal firm value and debt‐promised payment level and between share retention and standard deviation.
Banks versus Venture Capital: Project Evaluation, Screening, and Expropriation
Published: 3/25/2004, Volume: 59, Issue: 2 | DOI: 10.1111/j.1540-6261.2004.00643.x | Cited by: 363
Masako Ueda
Why do some start‐up firms raise funds from banks and others from venture capitalists? To address this question, I study a model in which the venture capitalist can evaluate the entrepreneur's project more accurately than the bank but can also threaten to steal it from the entrepreneur. Consistent with evidence regarding venture capital finance, the model implies that the characteristics of a firm financing through venture capitalists are relatively little collateral, high growth, high risk, and high profitability. The model also suggests that tighter protection of intellectual property rights encourages entrepreneurs to finance through venture capitalists.