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Optimal long-term financial contracting

delete2007-09-07
delete226
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OA
AI
P
Peter M. DeMarzo
M
Michael J. Fishman *
DOI：10.1093/rfs/hhm031delete
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Abstract

Abstract

En 中文
We develop an agency model of financial contracting. We derive long-term debt, a line of credit, and equity as optimal securities, capturing the debt coupon and maturity; the interest rate and limits on the credit line; inside versus outside equity; dividend policy; and capital structure dynamics. The optimal debt-equity ratio is history dependent, but debt and credit line terms are independent of the amount financed and, in some cases, the severity of the agency problem. In our model, the agent can divert cash flows; we also consider settings in which the agent undertakes hidden effort, or can control cash flow risk.
Keywords:
COSTLY STATE VERIFICATION
SECURITY DESIGN
MORAL HAZARD
CONTINUOUS-TIME
FIRM DYNAMICS
DEBT
RENEGOTIATION
AGENCY
MODEL
INVESTMENT
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AI Summary

Key information extracted from the uploaded paper, including a brief overview, abstract, background, key highlights, visual analysis, and future outlook.

Journal

Review of Financial Studies cover
Review of Financial Studies
IF:
5.4
Papers:
2.8K
Citations:
3.0W

Organization

No organization information available