Abstract
This paper investigates staged financing in an environment where an entrepreneur faces an imperfect capital market and an investor faces agency costs and uncertainty in an equity joint venture (EJV). Staged financing plays two roles in this model: to control risks and to mitigate moral hazard. Using parametric functions and comparing staged financing with up-front financing, we derive a few interesting properties of staged financing. We show that when staged financing is used together with the sharing contract, staged financing acts as an effective complementary mechanism in controlling agency problem.