Pugel, Thomas A.; Saunders, Anthony; Chidambaran, N. K. - Financial Institutions Center, Wharton School of Business - 1996
The authors consider the problem of a risk-averse firm with limited liability. The firm has to select the size of its investment in a risky project. We show that the optimal exposure to risk of the limited liability firm is always larger than under full liability. Moreover, there exists a...