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- Title
Technological Determinants of Financial Constraints.
- Authors
Starmans, Jan
- Abstract
This paper studies the investor's investment decision in a standard financial contracting model. The investor chooses among entrepreneurs with heterogeneous production technologies who generate different probability distributions of cash flow under effort. I provide a complete characterization of optimal contracts, agency rents, and the investor's investment decision. Differences in entrepreneurs' production technologies imply differences in optimal contracts and agency rents across equally productive entrepreneurs, which biases and potentially distorts the investor's investment decision. The results provide a complete characterization of entrepreneurs' financial constraints in the presence of heterogeneous production technologies and uncover a fundamental link between production technologies, financial contracts, and financial constraints. This paper was accepted by Gustavo Manso, finance. Funding: This work was supported by the Swedish House of Finance.
- Subjects
BUSINESSPEOPLE; DISTRIBUTION (Probability theory); CASH flow; HOUSING finance; FINANCE companies
- Publication
Management Science, 2023, Vol 69, Issue 5, p3003
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.2022.4421