Povel, Paul; Raith, Michael - Sonderforschungsbereich 504 "Rationalitätskonzepte, …; … - 1999
We study a firm's incentives in an environment in which optimal contracts resemble debt. After agreeing to the terms of a financial contract, but before its earnings are realised, a firm has to take a decision which affects its cash flows. This decision cannot be observed by the lender; this is...