We exploit an influential 1991 Delaware court ruling to examine simultaneously two types of conservatism that play important roles in resolving creditor-owner agency conflicts: contracting conservatism and reporting conservatism. The ruling expanded managerial fiduciary duties in favor of...

We exploit an influential 1991 Delaware court ruling to examine simultaneously two types of conservatism that play important roles in resolving creditor-owner agency conflicts: contracting conservatism and reporting conservatism. The ruling expanded managerial fiduciary duties in favor of...

We examine how firms' contractual relationships with their employees affect the design of their debt contracts, and their use of financial covenants and pricing grids in particular. Viewing the firm as nexus of both explicit and implicit contractual relationships, we argue that managers...

We examine how income taxes—both managerial and corporate—influence the design of firms’ debt contracts and their use of financial covenants in particular. Both levels of taxation have the potential to exacerbate conflicts of interest among creditors, shareholders, and managers and,...

We develop three complementary tests to examine how adverse selection affects the design of executive compensation contracts: First, we show that externally hired CEOs receive higher total pay and have fewer equity incentives relative to internally promoted CEOs, consistent with their ability to...