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...

This paper considers a problem in which an agent is hired to manage a capital investment and subsequently receives private information regarding the productivity of the capital investment. The capital manager must decide whether to invest capital supplied by the firm (the principal), or to...