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Bridge over ocean
1 July 2006 Financial Analysts Journal Volume 62, Issue 4

Revenue Recognition Certificates: A New Security

  1. Raymond A. LeClair
  2. Evan Schulman

Revenue recognition certificates provide returns as a specified function of a company’s sales or gross revenues over a defined period of time in the future. To explore whether certificates would be an advantage in the financial markets, this article discusses the agency problems of these certificates as well as the benefits to investors and issuers of debt and certificates. A corporate bond pricing model is adapted to value the certificates and is used to produce representative numerical examples.

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