Koufopoulos, Kostos; Kozhan, Roman; Trigilia, Giulio - Department of Economics, University of Warwick - 2014
We consider a model of external financing under ex ante asymmetric information and profit manipulation (non verifability). Contrary to conventional wisdom, the optimal contract is not standard debt, and it is not monotonic. Instead, it resembles a contingent convertible (CoCo) bond. In...