Marketable incentive contracts and capital structure relevance
Article Abstract:
This article investigates the claim that debt finance can increase firm value by curtailing managers' access to "free cash flow." We first show that incentive contracts that tie the managers' pay to stockholder wealth are often a superior solution to the free cash flow problem. We then consider the possibility that the manager can trade on secondary capital markets. Liquid secondary markets are shown to undermine management incentive schemes and, in many cases, to restore the value of debt finance in controlling the free cash flow problem. (Reprinted by permission of the publisher.)
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 1997
User Contributions:
Comment about this article or add new information about this topic:
Investment, uncertainty, and liquidity
Article Abstract:
Analysis of an endogenous financing constraint on a firmEs investment decision indicates that high-liquidity firms have the greatest investment to cash flow sensitivity, and that a higher level of uncertainty produces an ambiguous impact on investment.
Publication Name: Journal of Finance
Subject: Business
ISSN: 0022-1082
Year: 2003
User Contributions:
Comment about this article or add new information about this topic:
- Abstracts: Moral hazard and adverse selection: the question of financial structure. Managerial preference, asymmetric information, and financial structure
- Abstracts: The roles of accounting information systems in an organization experiencing financial crisis. Ambiguity and accounting: the elusive link between information and decision making
- Abstracts: A generalized econometric model and tests of a signalling hypothesis with two discrete signals