Download or read book Moral Hazard and Capital Structure Dynamics written by Mathias Dewatripont and published by . This book was released on 2002 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Moral Hazard and Capital Structure Dynamics Second Version written by Mathias Dewatripont and published by . This book was released on 2003 with total page 55 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book A Theory of Capital Structure Under Moral Hazard and Asymmetric Information written by Yul Wha Lee and published by . This book was released on 1989 with total page 136 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Dynamic Investment with Adverse Selection and Moral Hazard written by Miguel Cantillo and published by . This book was released on 2017 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Capital Structure and Risk Dynamics Among Banks written by Keegan Floquet and published by LAP Lambert Academic Publishing. This book was released on 2011-03 with total page 280 pages. Available in PDF, EPUB and Kindle. Book excerpt: In an attempt to restore banking stability and safety during the 1980's, bank regulators typically introduced explicit minimum capital regulation to increase capital ratios and moderate risk-taking. The effects of bank regulation on the capital and risk levels of banks are not always as intended; in some cases, promoting moral hazard behaviour and further increasing the probability of insolvency. Some of these effects were at the roots of the Global Financial Crisis. This book aims to explore in greater detail the relationship between capital and risk, the reasons for this relationship and why this relationship in emerging market banks may differ from that of banks in developed markets. A comprehensive analysis of corporate financial theory relating to capital and risk are carried out and form the theoretical basis of this study.

Download or read book Moral Hazard and Capital Structure Dynamics written by Mathias Dewatripont and published by . This book was released on 2002 with total page 68 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Risky Debt Moral Hazard and the Capital Structure Decision of the Firm written by Gioia Maria Pescetto and published by . This book was released on 1987 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Moral Hazard Finance and Firm Dynamics written by Gian Luca Clementi and published by . This book was released on 2000 with total page 252 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Investment and Financing Decisions Under Moral Hazard written by Richard Carleton Green and published by . This book was released on 1982 with total page 486 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book The Handbook of the Economics of Corporate Governance written by Benjamin Hermalin and published by Elsevier. This book was released on 2017-09-18 with total page 762 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Download or read book Moral Hazard Investment and Firm Dynamics written by Hengjie Ai and published by . This book was released on 2014 with total page 61 pages. Available in PDF, EPUB and Kindle. Book excerpt: We present a dynamic general equilibrium model with heterogeneous firms. Owners of the firms delegate investment decisions to managers, whose consumption and investment are private information. We solve the optimal incentive compatible contracts and characterize the implied firm dynamics. Optimal risk sharing requires managers' equity share decrease with the firm size. This in turn implies that it is harder to prevent private benefit in larger firms, where managers have lower equity stake under the optimal contract. Consequently, smaller firms invest more, pay less dividends, and grow faster. Quantitatively, we show that our model is consistent with the Pareto-like size distribution of firms in the data, as well as the pattern of the relationships between firm size and firms' investment and dividend policies.

Download or read book The Great Industry Gamble written by Aron Toth and published by . This book was released on 2008 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: I investigate the dynamic effect of moral hazard on market structure in a general framework. In this model the evolution of market structure determines the severity of moral hazard and, in turn, moral hazard fuels market structure dynamics through a survival contest. In the absence of scale economies I show that the presence of moral hazard results in a convergence towards market concentration regardless of the intensity of competition. On the other hand, the dynamics leading to market concentration reduces moral hazard even when prices do not increase with concentration (e.g. Bertrand competition). Therefore, the main policy implication is that market concentration can be effective against moral hazard and as such, welfare increasing. The model is suitable to explain the puzzling market transformation of industries such as banking, health care and audit.

Download or read book Dynamics of Banks Capital Accumulation written by Emanuel Barnea and published by . This book was released on 2009 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: How long does it take for the stock of financial intermediation capital to return to its optimal, profit maximizing, level following a severe shock, and what is the mechanism that governs it? We introduce a dynamic neoclassical model of capital structure that is governed by the process of capital accumulation and which adheres to stylized features of banking (non-competitive market, adverse selection, moral hazard, monitoring, and market discipline). The model is applied to U.S banks data where we (i) assess the validity of our model by simulating it and comparing the derived dynamics against the actual, and (ii) examine the empirical reaction of our model to (a) risk shock, (b) business cycle shock and (c) monetary policy shock. We examine each shock separately and derive the reaction of the capital ratios of large and small banks. Our model generates important information regarding the speed of convergence of capital to its optimal level following a severe shock, as well as the mechanism that governs it and implications for banking supervision policies.

Download or read book Financial Constraints Investment and Capital Structure written by Kunal Sengupta and published by . This book was released on 2002 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.

Download or read book Moral Hazard in Health Insurance written by Amy Finkelstein and published by Columbia University Press. This book was released on 2014-12-02 with total page 161 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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

Download or read book Corporations in Evolving Diversity written by Masahiko Aoki and published by Oxford University Press. This book was released on 2010-05-06 with total page 227 pages. Available in PDF, EPUB and Kindle. Book excerpt: The 2008-9 financial crisis demands we look anew at the role of corporations, and the working of financial markets around the world. In this book, Masahiko Aoki provides a compelling new analysis of the corporate firm; the role of shareholders, managers and workers; and institutional governance structures.

Download or read book Capital Structure in the Modern World written by Anton Miglo and published by Springer. This book was released on 2016-07-20 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt: 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.