This paper examines simultaneous incentive conflicts between shareholders, bondholders, and managers. Manager-owner conflicts arise from information asymmetries, and interact with traditional shareholder-bondholder conflicts (i.e., underinvestment and asset substitution conflicts). Managers are...

This article illustrates an incentive-aligning role of debt in the presence of optimal compensation contracts. Owing to information asymmetry, value-maximizing compensation contracts allow managerial rents following high investment outcomes. The manager has an incentive to increase these rents...