Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/198826 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7466
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
In the financial economics literature debt contracts provide efficient solutions for addressing managerial moral hazard problems. We analyze a model with multiple projects where the manager obtains private information about their quality after the contract with investors is agreed. The likelihood of success of each project depends on both its quality and the level of effort exerted on it by the manager. We find that, depending on the distribution of the quality shock, the optimal financial contract can be either debt or equity.
Subjects: 
outside equity
financial contracts
principal agent model
JEL: 
G30
D86
Document Type: 
Working Paper
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