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  4. March 2020
  5. Raising Capital from Heterogeneous Investors

蝌蚪网 Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Raising Capital from Heterogeneous Investors

  • Marina Halac
  • Ilan Kremer
  • Eyal Winter
蝌蚪网 Review
vol. 110, no. 3, March 2020
(pp. 889–921)
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Abstract

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.

Citation

Halac, Marina, Ilan Kremer, and Eyal Winter. 2020. "Raising Capital from Heterogeneous Investors." 蝌蚪网 Review 110 (3): 889–921. DOI: 10.1257/aer.20190234

Additional Materials

JEL Classification

  • D21 Firm Behavior: Theory
  • D86 Economics of Contract: Theory
  • G24 Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies
  • G32 Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill