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Optimal Financial Contracts

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Author Info
Dowd, Kevin

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Abstract

This paper investigates the structure of optimal financial contracts and the main factors that influence it--verification and monitoring costs, moral hazard, agents' wealth limitations, and their attitudes to risk. It suggests that the optimality of debt contracts with costly bankruptcy is more robust than some have recently suggested and discusses how recent literature is able to explain features of debt contracts such as coupon payments, covenant restrictions, the distinction between default and liquidation, maturity structure, collateral, and credit rationing. It also examines the optimality of equity and discusses circumstances where the optimal contract is neither debt nor equity. Copyright 1992 by Royal Economic Society.

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Publisher Info
Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 44 (1992)
Issue (Month): 4 (October)
Pages: 672-93
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Handle: RePEc:oup:oxecpp:v:44:y:1992:i:4:p:672-93

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  1. Gine, Xavier & Yang, Dean, 2007. "Insurance, credit, and technology adoption : field experimental evidence from Malawi," Policy Research Working Paper Series 4425, The World Bank. [Downloadable!]
    Other versions:
  2. Zhixiong Zeng, 2007. "The price of size and financial market allocations," Economic Theory, Springer, vol. 30(1), pages 21-48, January. [Downloadable!] (restricted)
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This page was last updated on 2009-12-15.

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