Raising Capital from Heterogeneous Investors

Halac, Marina and Kremer, Ilan and Winter, Eyal (2018) Raising Capital from Heterogeneous Investors. Working Paper. Lancaster University, Department of Economics, Lancaster.

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A rm raises capital from multiple investors to fund a project. The project succeeds only if the capital raised exceeds a stochastic threshold, and the rm offers payments contingent on success. We study the rm's optimal unique-implementation scheme, namely the scheme that guarantees the rm the maximum payoff. This scheme pays investors differential net returns (per unit of capital) depending on the size of their investments. 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 rm's payoff. Our analysis highlights strategic risk as an important potential driver of inequality.

Item Type: Monograph (Working Paper)
Departments: Lancaster University Management School > Economics
ID Code: 127769
Deposited By: ep_importer_pure
Deposited On: 26 Sep 2018 09:22
Refereed?: No
Published?: Published
Last Modified: 20 Feb 2020 00:28
URI: https://eprints.lancs.ac.uk/id/eprint/127769

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