The purpose of the this paper is to study the design of securities when a firm must raise external capital from an asymmetrically informed capital market and when the firm has operating discretion in the management of the capital raised that embodies the essence of the asset substitution...

A firm must decide what security to sell to raise external capital to finance a profitable investment opportunity. There is ex ante asymmetry of information regarding the probability distribution of cash flow generated by the investment. In this setting, we derive necessary and sufficient...

The purpose of the this paper is to study the design of securities when a firm must raise external capital from an asymmetrically informed capital market and when the firm has operating discretion in the management of the capital raised that embodies the essence of the asset substitution...

Firms with private information about the outcomes of production under uncertainty may face capital (liquidity) constraints that prevent them from attaining efficient levels of investment in a world with costly and/or imperfect monitoring. As an alternative, we examine the efficiency of a simple...

In recent years bonuses tied to performance have become commonplace in banks and other financial institutions; indeed they now constitute a major part of employee compensation.  The practice was originally justified by academic work on principal-agent contracts, which argued that performance...

This paper considers optimal compensation for a CEO who is entrusted with administering corporate assets honestly. Optimal compensation designs maximize integrity at minimum cost. These designs are very “low powered,” i.e., while specifying a lower bound for performance and increasing pay...

We model and experimentally examine the board structure-performance relationship. We examine single-tiered boards, two-tiered boards, insider-controlled boards and outsider-controlled boards. We find that even insider-controlled boards frequently adopt institutionally preferred rather than...