We provide large sample evidence that credible hedge commitments reduce the agency costs of debt and that accounting conservatism enhances hedge commitments. We examine 2,338 bank loans entered into by 263 mandatory derivative users that are contractually obligated by interest rate protection...

This paper examines how the centralization of loan decisions affects decision making in a bank. To that end, we combine field data with a lab experiment to study how loan officers change their effort to collect and share soft information about small to medium-sized applicants when their decision...

This paper investigates two elements of agency costs, namely the wealth transfer and the value destruction problems, associated with the equity-conversion and writedown CoCo bonds. By focussing on the costs as those stemming from the deviation from absolute priority rule (DAPR), we derive the...

The convex payoffs for equity holders in a corporate structure results in agency costs and moral hazard problems. The implicit government guarantee for banks accentuates these. We believe that the Basel III related bail-in contingent convertible (CoCo) structures do only not solve these...

Servicers are less likely to renegotiate delinquent loans in residential MBS pools that are more deeply tranched. A one standard deviation increase in tranching corresponds to a 14 percent decrease in loan modification relative to the mean. In highly tranched pools, servicers pursue fewer...

Both Islamic and classical venture contracts suffer from information asymmetry and incentive problems. Venture capitalist and Entrepreneur have an agency relationship because of the insufficient information about the funded project and/or the entrepreneur type. Referring to the literature, this...

The paper uses finance and agency theory to establish two main propositions: First, that the conditionality attached to adjustment programs supported by the IMF is justified. Second, that ownership of programs by the borrowing country is crucial for their success. Hence, since both IMF...

We examine the role of collateral in a dynamic model of optimal credit contracts in which a borrower values both housing and non-housing consumption. The borrower's private information about his income is the only friction. An optimal contract is collateralized when in some state, some portion...

Securitization is a financial innovation that experiences a boom-bust cycle, as many other innovations before. This paper analyzes possible reasons for the breakdown of primary and secondary securitization markets, and argues that misaligned incentives along the value chain are the primary cause...

We analyze a principal agent model with hidden action, limited liability and truth-telling constraints under the assumption that the principal has private information. We focus on whether the principal should reveal his private information to the agent. On the one hand, revelation allows to...