Moral Hazard And Capital Structure Dynamics Second Version
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| Author | : Mathias Dewatripont |
| Publisher | : |
| Total Pages | : 55 |
| Release | : 2003 |
| Genre | : |
| ISBN | : |
We base a contracting theory for a start-up firm on an agency model with observable but nonverifiable effort, and renegotiable contracts. Two essential restrictions on simple contracts are imposed: The entrepreneur must be given limited liability, and the investor's earnings must not decrease in the realized profit of the firm. All message game contracts with pure strategy equilibria (and no third parties) are considered. Within this class of contracts/equilibria, and regardless of who has the renegotiating bargaining power, debt and convertible debt maximize the entrepreneur's incentives to exert effort. These contracts are optimal if the entrepreneur has the bargaining power in renegotiation. If the investor has the bargaining power, the same is true unless debt induces excessive effort. In the latter case, a non-debt simple contract achieves efficiency; the non-contractibility of effort does not lower welfare. Thus, when the non-contractibility of effort matters, our results mirror typical capital structure dynamics: An early use of debt claims, followed by a switch to equity-like claims.
| Author | : Miguel Cantillo |
| Publisher | : |
| Total Pages | : 40 |
| Release | : 2017 |
| Genre | : |
| ISBN | : |
This paper develops a dynamic model of capital structure and investment. In a world with low and high ability managers, the former mask as the latter, but to do so have to overstate both earnings and investment. Debt is a mechanism that eventually separates investors' abilities, at the cost of intervening unlucky high productivity managers. Immediate separation is counterproductive, as it generates costs and no expected payoff. The security design that asymptotically implements optimal investment includes the use of excess non-operating cash, of proportional cash flow compensation, and of "golden parachutes". Relative to a first best case, high ability managers will underinvest. Low ability managers will generally overinvest, except when their firm is close to bankruptcy, in which case they will loot the company by underinvesting and overstating their earnings.
| Author | : Richard Carleton Green |
| Publisher | : |
| Total Pages | : 486 |
| Release | : 1982 |
| Genre | : Corporations |
| ISBN | : |
| Author | : Amy Finkelstein |
| Publisher | : Columbia University Press |
| Total Pages | : 161 |
| Release | : 2014-12-02 |
| Genre | : Medical |
| ISBN | : 0231538685 |
Addressing the challenge of covering heath care expenses—while minimizing economic risks. Moral hazard—the tendency to change behavior when the cost of that behavior will be borne by others—is a particularly tricky question when considering health care. Kenneth J. Arrow’s seminal 1963 paper on this topic (included in this volume) was one of the first to explore the implication of moral hazard for health care, and Amy Finkelstein—recognized as one of the world’s foremost experts on the topic—here examines this issue in the context of contemporary American health care policy. Drawing on research from both the original RAND Health Insurance Experiment and her own research, including a 2008 Health Insurance Experiment in Oregon, Finkelstein presents compelling evidence that health insurance does indeed affect medical spending and encourages policy solutions that acknowledge and account for this. The volume also features commentaries and insights from other renowned economists, including an introduction by Joseph P. Newhouse that provides context for the discussion, a commentary from Jonathan Gruber that considers provider-side moral hazard, and reflections from Joseph E. Stiglitz and Kenneth J. Arrow. “Reads like a fireside chat among a group of distinguished, articulate health economists.” —Choice
| Author | : Kunal Sengupta |
| Publisher | : |
| Total Pages | : 53 |
| Release | : 2002 |
| Genre | : |
| ISBN | : |
Intertemporal considerations have been largely ignored in the theory of capital structure. We provide a dynamic model that integrates firms' investment, financing and cash holding decisions in the presence of moral hazard. The distinguishing feature of this model is that it takes into account financially constrained firms' incentives to intertemporally allocate their liquidity between current and future projects. The incentive to intertemporally allocate liquidity comes from the concavity of a payoff function similar to that considered by Froot, Scharfstein and Stein (1993), which causes firms to behave as though they are risk averse when financially constrained. We show that once intertemporal considerations are brought in, stylized relationships that are often associated with models based on information asymmetry could be modified significantly, making it difficult to accept or reject such models empirically. Three such relationships that we examine are: (i) the relation between cash flows (or changes in liquidity) and investment, (ii) the relation between profitability and leverage, and (iii) the relation between future investment opportunities and leverage. As regards the first, we show that there is a critical level of liquid balances such that firms below this level exhibit greater cash flow sensitivity of investment than those above; however, the cash flow sensitivity of investment can be non-monotonic over a particular range of liquid balances (equivalently, firms' hurdle rates for projects can increase in the level of liquid balances). These results reconcile recent empirical evidence in Fazzari, Hubbard and Petersen (1988, 2000), Kaplan and Zingales (1995, 2000) and Cleary (1999). Second, we show that in a dynamic framework, firm's debt level could be positively related to profitability - contrary to the conventional wisdom of one-period models (but consistent with recent empirical evidence in MacKay and Phillips (2001)). Finally, an improvement in future growth opportunities can either cause the firm to increase or decrease its current leverage, depending on the nature of this improvement.
| Author | : Mathias Dewatripont |
| Publisher | : |
| Total Pages | : 68 |
| Release | : 2002 |
| Genre | : Agency (Law) |
| ISBN | : |
| Author | : Benjamin Hermalin |
| Publisher | : Elsevier |
| Total Pages | : 762 |
| Release | : 2017-09-18 |
| Genre | : Business & Economics |
| ISBN | : 0444635408 |
The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. Concentrates on underlying principles that change little, even as the empirical literature moves on Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field’s substantive findings, all of which help point the way forward
| Author | : Arindam Bandyopadhyay |
| Publisher | : Cambridge University Press |
| Total Pages | : 390 |
| Release | : 2016-05-09 |
| Genre | : Business & Economics |
| ISBN | : 110714647X |
This book explains how a proper credit risk management framework enables banks to identify, assess and manage the risk proactively.
| Author | : Anton Miglo |
| Publisher | : Springer |
| Total Pages | : 266 |
| Release | : 2016-07-20 |
| Genre | : Business & Economics |
| ISBN | : 3319307134 |
This book focuses on microeconomic foundations of capital structure theory. It combines theoretical results with a large number of examples, exercises and applications. The book examines fundamental ideas in capital structure management, some of which are still not very well understood in the business community, such as Modigliani and Miller’s irrelevance result, trade-off theory, pecking-order theory, asset substitution, credit rationing and debt overhang. Chapters also cover capital structure issues that have become very important following the recent financial crisis. Miglo discusses the ways in which financial economists were forced to look critically at capital structure, as the problems faced by many companies stemmed from their financing policies following the crisis. The book also discusses links between capital structure and firm’s performance, corporate governance, firm’s strategy and flexibility, and covers such topics as life cycle approach to capital structure management, capital structure of small and start-up companies, corporate financing versus project financing and examples of optimal capital structure analyses for different companies. This comprehensive guide to capital structure theory will be of interest to all students, academics and practitioners seeking to understand this fast-developing and critical area of business management.
| Author | : Jean Tirole |
| Publisher | : Princeton University Press |
| Total Pages | : 657 |
| Release | : 2010-08-26 |
| Genre | : Business & Economics |
| ISBN | : 1400830222 |
"Magnificent."—The Economist From the Nobel Prize–winning economist, a groundbreaking and comprehensive account of corporate finance Recent decades have seen great theoretical and empirical advances in the field of corporate finance. Whereas once the subject addressed mainly the financing of corporations—equity, debt, and valuation—today it also embraces crucial issues of governance, liquidity, risk management, relationships between banks and corporations, and the macroeconomic impact of corporations. However, this progress has left in its wake a jumbled array of concepts and models that students are often hard put to make sense of. Here, one of the world's leading economists offers a lucid, unified, and comprehensive introduction to modern corporate finance theory. Jean Tirole builds his landmark book around a single model, using an incentive or contract theory approach. Filling a major gap in the field, The Theory of Corporate Finance is an indispensable resource for graduate and advanced undergraduate students as well as researchers of corporate finance, industrial organization, political economy, development, and macroeconomics. Tirole conveys the organizing principles that structure the analysis of today's key management and public policy issues, such as the reform of corporate governance and auditing; the role of private equity, financial markets, and takeovers; the efficient determination of leverage, dividends, liquidity, and risk management; and the design of managerial incentive packages. He weaves empirical studies into the book's theoretical analysis. And he places the corporation in its broader environment, both microeconomic and macroeconomic, and examines the two-way interaction between the corporate environment and institutions. Setting a new milestone in the field, The Theory of Corporate Finance will be the authoritative text for years to come.
