This paper analyzes an optimal incentive contract for an overoptimistic manager who overestimates the investment potential of the firm. It shows that, compared with a rational manager, an overoptimistic manager is willing to accept a linear incentive contract with a lower fixed wage. At the same...

We propose two tests for the equality of covariance matrices between two high-dimensional populations. One test is on the whole variance-covariance matrices, and the other is on offdiagonal sub-matrices which define the covariance between two non-overlapping segments of the high-dimensional...

We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less...

This paper considers the effects multilateral opportunistic behaviour on the firm’s capital structure. We show that multiple parties introduce greater incompleteness, because the firm cannot control future contracts in potential opportunistic coalitions. A higher debt-equity ratio increases...

I analyze how boards of directors with heterogeneous preferences can affect the information shared with the CEO with the help of a cheap-talk model that allows for large groups of receivers. This paper provides new insights on how heterogeneity of boards can change the way of communication...

We consider a simple model of lending and borrowing combining two informational problems: adverse selection and costly state verification. Our analysis highlights the interaction between these two informational problems. We notably show that the higher the monitoring cost, the less...

This paper shows that stakeholders' multilateral opportunistic behaviour during financial distress may lead to premature liquidation of the firm. Consequently, the firm will use its capital structure to mitigate the costs of such opportunism. Specifically, the firm will reduce its debt so that...

We propose a model of strategic interactions between a firm, its workers and its creditors in a dynamic, uncertain environment. We show that the fact that the firm can play off one stakeholders against another increases the likelihood and magnitude of concessions being made, either on a...