Upfront versus staged financing: the role of verifiability

Shin, Dongsoo; Yun, Sungho

doi:10.1080/14697688.2012.738933

Cited by 4 publications

(3 citation statements)

References 33 publications

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“…When the value of the expected rate of return of the project is relative small, the investment boundary of the private firm under all equity financing is lower than that under the short-term debt financing; on the other hand, when the value of the expected rate of return of the project is relative large, the investment boundary under the short-term debt financing is lower than that under all equity financing. This result manifests that the debt financing does not necessarily cause the so-called "over-investment problem" indicated in previous studies [30,31]. When the project is not as profitable, short-term debt financing arrangement may deter the private firm from investing in the project, which supports the finding of previous studies that staged financing can help reduce the opportunistic behavior of the private firm [30,31].…”

Section: Plos Onesupporting

confidence: 86%

“…This result manifests that the debt financing does not necessarily cause the so-called "over-investment problem" indicated in previous studies [30,31]. When the project is not as profitable, short-term debt financing arrangement may deter the private firm from investing in the project, which supports the finding of previous studies that staged financing can help reduce the opportunistic behavior of the private firm [30,31]. Based on the above analysis, a theoretical prediction is brought forward as follows.…”

Section: Plos Onesupporting

confidence: 77%

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Investment analysis of the private firm under different financial arrangements in infrastructure projects

Ding,

Huang,

et al. 2024

PLoS ONE

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This study investigates the impact of various financial arrangements on the investment behavior of the private firm in PPP (Public-Private Partnership) projects. The results manifest that: first, the private firm will invest in the project earlier under long-term debt financing than under short-term debt financing or all equity financing; second, the investment boundary of the private sector decreasing with the probability of obtaining long-term debt financing under short-term debt financing, while increasing with the probability of obtaining long-term debt financing under long-term debt financing; third, the optimal debt level under short-term debt financing displays a U-shaped relationship with the refinancing risk probability; fourth, under short-term debt financing, the difference in the optimal capital structure between projects with different volatility of cash flow is larger when the refinancing risk probability is lower; and fifth, the private firm may exit the project earlier under short-term debt financing than under long-term debt financing. These results can help us to understand the investment behavior of the private firm under different financial arrangements.

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Section: Plos Onesupporting

confidence: 86%

Section: Plos Onesupporting

confidence: 77%

Investment analysis of the private firm under different financial arrangements in infrastructure projects

Ding,

Huang,

et al. 2024

PLoS ONE

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“…Here, it is important to point out that from the financing perspective, the lump‐sum and pay‐as‐you‐go contracts resemble the upfront and staged financing contracts, respectively. In this context, Shin and Yun () show that given the potential moral hazard problems (i.e., the entrepreneur pursuing his/her private benefit and shirking on the valuation of the project), the upfront contract would be implemented when the entrepreneur's effort for project evaluation is unverifiable; otherwise, when this effort can be verified, staged financing is used despite the associated cost. Staged financing can also help control the risk and mitigate the moral hazard problems when the capital market is imperfect (Wang and Zhou, ).…”

Section: Introductionmentioning

confidence: 99%

Lump‐Sum versus Pay‐As‐You‐Go: The Moderating Effect of Contract Types on the Optimal Logistics Decisions

2016

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When outsourcing their logistics operations to transportation companies, manufacturers/ retailers need to design a contract, under which payment can be made either in a lump sum or over time (i.e., per each delivery). This paper investigates how the payment method (i.e., type of contracts) impacts the transporter's delivery schedule by developing an analytical model based on the optimal control and game theories. Our findings show that the transporter's delivery schedule depends on the method of payment and the overall cost of hiring a transporter varies with the types of contracts. We provide theoretical explanations to these findings along with managerial implications.

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Social Enterprise Under Moral Hazard: Who Gets State Subsidies and Active Financing?

Lovas,

Berlinger,

Tóth

2024

Eur J Dev Res

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We develop a double-sided moral hazard model of social entrepreneurship and derive the optimal state subsidy. Then, we analyze the data of an EU-funded training and mentoring program aiming at preparing social entrepreneurs for private financing. Using content analysis techniques, we investigate the 203 applications for the program, the reviewers’ evaluation, and the selection decision. Social enterprises produce private and public benefits, use market and non-market resources, and involve a wide range of stakeholders with different incentives. We examine why different projects can get active financing (financing plus advisory), or only passive financing (financing without advisory), or no financing at all. We identify five relevant selection criteria such as entrepreneurial net present value, entrepreneurial agency cost, advisory net present value, advisory agency cost, and the external effects of the project. Empirical findings are consistent with the theoretical model. Applicants with higher scores in business plan, social impact, and geographical scope were significantly more likely to be selected, especially if their activities required no domain-specific knowledge from the advisors. However, higher agency costs, reflected in too many business lines and early-stage operations, seem to reduce the chances significantly. We formulate a moral hazard model for social entrepreneurship with four simultaneously optimizing players: an entrepreneur, an investor, an advisor, and the state. With the help of our unique database, we get valuable insights into the financing decisions of a profit-seeking investor. Our findings can contribute to the improvement of the design of state-subsidized social entrepreneurship programs.

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Upfront versus staged financing: the role of verifiability

Cited by 4 publications

References 33 publications

Investment analysis of the private firm under different financial arrangements in infrastructure projects

Investment analysis of the private firm under different financial arrangements in infrastructure projects

Lump‐Sum versus Pay‐As‐You‐Go: The Moderating Effect of Contract Types on the Optimal Logistics Decisions

Social Enterprise Under Moral Hazard: Who Gets State Subsidies and Active Financing?

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