This paper develops a model to explain the widely used investment mandates in the institutional asset management industry based on two insights: first, giving a manager more investment flexibility weakens the link between fund performance and his effort in the designated market, and thus...

This paper studies the optimal compensation problem between shareholders and the agent in the Leland (1994) capital structure model, and finds that the debt-overhang effect on the endogenous managerial incentives lowers the optimal leverage. Consistent with data, our model delivers a negative...