High-powered incentives may induce higher managerial effort, but they also expose managers to idiosyncratic risk. If … managers are risk averse, they might underinvest when firm-specific uncertainty increases, leading to suboptimal investment … decisions from the perspective of well-diversified shareholders. We empirically document that when idiosyncratic risk rises …

Within the past two years, important advances have been made in modeling credit risk at the portfolio level … especially influential benchmarks for credit risk models, J.P. Morgan's CreditMetrics and Credit Suisse Financial Product …

risk neutral, and agency problems are absent. We show that competitive pressure obliges firms to make inefficient decisions …