Financing and Managerial Support with (Some) Optimistic Entrepreneurs

53 Pages Posted: 15 Mar 2010

Multiple version iconThere are 3 versions of this paper

Date Written: March 14, 2010

Abstract

This paper analyses optimal financing contracts between potentially optimistic entrepreneurs and potentially supportive financiers. The presence of optimistic entrepreneurs (who overestimate their personal abilities to manage their venture) leads realistic financiers to bring managerial support even if entrepreneurs are self-confident, i.e. even if they believe they don't need managerial support. We find that self-confident entrepreneurs choose convertible securities with more debt-like features (less supportive financier and higher downside protection for the financier) than self-unconfident ones. The paper also shows that the prevalence of entrepreneurial optimism renders more difficult for self-confident entrepreneurs to signal themselves through the choice of financing contracts and favors the emergence of a unique form of finance. In contrast, entrepreneurs use a greater variety of securities when entrepreneurial optimism is less prevalent.

Keywords: venture capital, optimism, entrepreneurship, financing contracts

JEL Classification: G24, G32

Suggested Citation

Vilanova, Laurent, Financing and Managerial Support with (Some) Optimistic Entrepreneurs (March 14, 2010). Available at SSRN: https://ssrn.com/abstract=1570589 or http://dx.doi.org/10.2139/ssrn.1570589

Laurent Vilanova (Contact Author)

University of Lyon 2 ( email )

93 Chemin des Mouilles
Ecully, 69009
France

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