Many adverse selection models of standard one-period debt contracts are based on the following seemingly innocuous assumptions. First, entrepreneurs have private information about the quality of their return distributions. Second, return distributions are ordered by the monotone likelihood-ratio...

We consider a privately informed issuer which holds a portfolio of assets that can be sold to raise cash, where the fractions of assets sold serve as a multidimensional signal. If good news about one asset is good news for the others, then there is a unique equilibrium that satisfies the...

This paper develops a theoretical model to demonstrate that the firm’s payout/investment decision may be affected by the relative magnitude of dividend and repurchasing premia. The model shows that the manager of high-quality firm may pass up a positive NPV project in order to cater to...

This paper uses the insider trading direction as a signal to design an optimal wage contract, where the principal-agent problem due to moral hazard is resolved. Insider trading provides the corporation important information about the action of the manager. It is a tough challenge for the owners...

This paper proposes a dynamic theory of capital budgeting and compensation when investment information is decentralized and division manager can inefficiently deploy capital. The incentive cost and firm policies vary monotonically with stored liquidity. After bad performances, liquidity is low,...

We present a dynamic general equilibrium model with heterogeneous firms. Owners of the firms delegate investment decisions to managers, whose consumption and investment are private information. We solve the optimal incentive compatible contracts and characterize the implied firm dynamics....

This paper studies how the informational content of dividends is affected by leverage. While higher dividends convey good news at low levels of leverage, dividends become a bad signal when leverage is high. Quantitatively, a dividend increase is predicted to have a positive stock price reaction...

Moral hazard and disagreement are important economic frictions. How do their individual effects on economic behavior differ and how do these frictions interact when operating together? This paper addresses these questions by developing a canonical model of disagreement (generated by...

With imperfect market hypothesis, it is widely accepted that announcements of dividend payouts affect firm value. An explanation has been proposed with the cash flow signaling theory and the dividend information content hypothesis. This original explanation, was developed in theoretical models...

This paper develops a theoretical model explaining management's choice of using corporate cash flow to pay dividends, repurchase shares, or invest in a real project. The model demonstrates the case in which managers have better information than investors about the quality of the firm...