IPOs, acquisitions, and the use of convertible securities in venture capital

• 成果类型: Article
• 署名作者: Hellmann, Thomas
• 署名单位: University of British Columbia
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2005.06.007
• 发表日期: 2006
• 页码: 649-679
• 关键词: venture capital; convertible securities; IPO; acquisition

摘要

This paper provides a new explanation for the use of convertible securities in venture capital. A key property of convertible preferred equity is that it allocates different cash flow rights, depending on whether exit occurs by acquisition or IPO. The paper builds a model with double moral hazard, where both the entrepreneur and the venture capitalist provide value-adding effort. The optimal contract gives the venture capitalist more cash flow rights in acquisitions than IPOs. This explains the use of convertible preferred equity, including automatic conversion at IPO. Contingent control rights are also important for achieving efficient exit decisions. (c) 2006 Elsevier B.V. All rights reserved.