We study a dynamic moral hazard setting where the manager has private ev- idence that predicts the firm's cash flows. When performance is low, bad news disclosure is rewarded by a lower borrowing cost relative to the no-evidence case. In contrast, no disclosure is associated with higher...

We study a dynamic agency model where the agent privately observes the firm's cash flows that are subject to persistent shocks. We characterize the policy dynamics and implement the optimal contract by financial securities. Because bad performance distorts investors' beliefs downward, the agent...

This paper proposes a dynamic theory of capital budgeting and compensation when investment information is decentralized and division manager can inefficiently deploy capital. The incentive cost and firm policies vary monotonically with stored liquidity. After bad performances, liquidity is low,...