The paper identifies conditions under which ‘inefficient’ favouritism emerges as an optimal outcome even when the principal do not exhibit ex-ante preferential bias for any particular agent. We characterize how the optimal incentive scheme is influenced in the presence of status incentives....

This paper presents results from an in-depth analysis of the foreign exchange rate exposure of a large nonfinancial firm based on proprietary internal data including cash flows, derivatives and foreign currency debt, as well as external capital market data. While the operations of the...

Based on the Euler equation approach, the paper analyzes the impacts of availability of internal funds on fixed investment spending in the presence of multiple investment options. It is argued that after financial liberalization real sector firms face a portfolio allocation problem between fixed...

This paper discusses the long-term financial lease contracts with lease evaluation. Here a comparatively simple and straightforward solution of neutralizing the risk of lease financing is explained. The lease is a contract between the owner and the user of assets for a certain period during...

A new model for predicting the future expected cash flows from a loan is developed. It is based on a detailed analysis of the events of fulfilling, delinquency and default of each individual payment on the loan. The proposed model has significantly less uncertainty compared with the Markov chain...

The problem of decomposing a cash flow has been treated in recent years by Gronchi (1986, 1987), Peccati (1987, 1991, 1992), Stewart (1991), Pressacco and Stucchi (1997). After showing that the Economic Value Added introduced by Stewart bears a strong resemblance to (and in some conditions...

We analyze the optimal regulation of a MFI that has private information on the intrinsic quality of its loan portfolio (adverse selection) and where the MFI’s choice of effort to improve this quality cannot be observed by the regulator (moral hazard). In designing optimal contracts the...

This paper looks at the determinants and effects of exchange rate exposure using data on 500 Indian firms over the period 1995-2011. Unlike the existing papers in the literature, we use a measure of `operational` currency exposure based on foreign currency revenues and costs of firms. Among...

This paper examines the positions of Coase and Pigou in regard to the problem of external effects (externalities). Assessing their two most important works, it appears that Coase has a more relevant preference for an evaluation of total efficiency, while Pigou, with some exceptions, is convinced...

This paper not only recommends means whereby principal-agent problems could be addressed, but also considers various ways in which the external auditor and audit committees contribute as corporate governance tools. The impact of bank regulations on risk taking and the need for a consideration of...