Investment and financing analysis for a venture capital alternative ✩

Dong, Linjia1,2; Yang, Zhaojun2

2023-09-01

10.1016/j.econmod.2023.106394

ECONOMIC MODELLING   影响因子和分区

0264-9993

1873-6122

We develop a two-stage investment model to examine a novel financing arrangement emerging from the financial services sector. We assume that an entrepreneur, who must borrow funds from a bank to exercise the option to invest in a project, enters into an agreement with an insurer. The insurer guarantees the debt and promises to finance a possible growth investment in the future. The entrepreneur pays a fixed fee to the insurer upon borrowing and grants an equity stake upon the growth investment. We analyze the relationship between the fixed fee and the insurer's eventual ownership stake, showing that the venture capital alternative succeeds in making a penniless entrepreneur start a project. The project is more valuable if the growth option is granted to the insurer, since it can mitigate the underinvestment problem.

Real options Loan guarantees Alternative venture capital Growth option Underinvestment

SSCI

英语

通讯

National Natural Science Foundation of China[72031003] ; Philosophy and Social Science Plan Project of Shenzhen, China[SZ2022D017]

Business & Economics

Economics

WOS:001025588100001

ELSEVIER

ECONOMICS BUSINESS

Web of Science

1.Shandong Univ Finance & Econ, Sch Finance, Jinan, Peoples R China
2.Southern Univ Sci & Technol, Dept Finance, Shenzhen 518055, Peoples R China

Dong, Linjia,Yang, Zhaojun. Investment and financing analysis for a venture capital alternative ✩[J]. ECONOMIC MODELLING,2023,126.

Dong, Linjia,&Yang, Zhaojun.(2023).Investment and financing analysis for a venture capital alternative ✩.ECONOMIC MODELLING,126.

Dong, Linjia,et al."Investment and financing analysis for a venture capital alternative ✩".ECONOMIC MODELLING 126(2023).