Showing 1 - 10 of 16
This paper considers the potential cost of subjective judgment and discretion in credit decisions. We show that subjectivity and discretion in the evaluation of borrowers create an incentive problem on the part of the lender. The lender s incentives to accept or reject a borrower depend only on...
Persistent link: https://www.econbiz.de/10012768610
We examine the relation between optimal venture capital contracts and the supply and demand for venture capital. Both the composition and type of financial claims held by the venture capitalist and entrepreneur depend on the market structure. Moreover, dierent market structures involve dierent...
Persistent link: https://www.econbiz.de/10012768623
We consider the security design problem of a lender who can assess the borrower s project prior to making an accept or reject decision. The lender s subjective assessment is represented by a private signal. Unless the lender extracts the full surplus from the project, her cutoff signal above...
Persistent link: https://www.econbiz.de/10012768749
Future wage payments drive a wedge between total firm output and the output share received by the firm s owners, thus potentially distorting strategic decisions by the firm s owners such as, e.g., whether to continue the firm, sell it, or shut it down. Using an optimal contracting approach, we...
Persistent link: https://www.econbiz.de/10012768880
This paper considers the potential cost of subjective judgment and discretion in credit decisions. We show that subjectivity and discretion in the evaluation of borrowers create an incentive problem on the part of the lender. The lender s incentives to accept or reject a borrower depend only on...
Persistent link: https://www.econbiz.de/10012768904
We offer a novel explanation for the use of collateral based on the dual function of banks to provide credit and assess the borrower s credit risk. There is no moral hazard or adverse selection on the part of borrowers the only inefficiency is that banks cannot contractually commit to providing...
Persistent link: https://www.econbiz.de/10012768920
We examine the relation between optimal venture capital contracts and the supply and demand for venture capital. Both the composition and type of financial claims held by the venture capitalist and entrepreneur depend on the market structure. Moreover, different market structures involve...
Persistent link: https://www.econbiz.de/10012768923
This paper compares optimal financial contracts with centralized and decentralizedfirms. Under centralized contracting headquarters raises funds on behalf of multiple projects and then allocates the funds on the firm s internal capital market. Under decentralized contracting each project raises...
Persistent link: https://www.econbiz.de/10012768996
Future wage payments drive a wedge between total firm output and the output share received by the firm's owners, thus potentially distorting strategic decisions by the firm's owners such as, e.g., whether to continue the firm, sell it, or shut it down. Using an optimal contracting approach, we...
Persistent link: https://www.econbiz.de/10012769033
We offer a novel explanation for collateral based on the notion that lenders make discretionary credit decisions that are too conservative. There is no borrower asymmetricinformation or moral hazard. Rather, the problem is that if lenders cannot extract the full surplus from the projects they...
Persistent link: https://www.econbiz.de/10012769035