We study the problem of financial contracting between a firm and outside investors when the firm cannot commit to future payouts, but assets can be contracted upon. By analyzing the renegotiation between firm and investors in default, we show that a capital structure with multiple investors...

The paper presents a simple model of financial contracting for a long-term investment project in which early project termination may be an optimal response to information asymmetries. The paper characterizes when this constellation leads to inefficient short- term investment. It is shown that in...