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Contingent Control Rights and Managerial Incentives: The Design of Long-term Debt

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Author Info
Zsuzsanna Fluck
Abstract

Enterprises, small or large, rely heavily on long-term financing arrangements to fund their operations. However, it has proved difficult for financial theory to justify the use of long-term contracts when the manager has the ability to divert or manipulate the cash flows, and when it is prohibitively costly for a third party, such as a court, to verify or prove any managerial wrongdoing. Why would investors enter into financial contracts that extend beyond the life of the firm's existing physical assets when such

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File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99070.pdf
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Paper provided by New York University, Leonard N. Stern School of Business- in its series New York University, Leonard N. Stern School Finance Department Working Paper Seires with number 99-070.

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Date of creation: 01 Nov 1999
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Handle: RePEc:fth:nystfi:99-070

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Postal: U.S.A.; New York University, Leonard N. Stern School of Business, Department of Economics . 44 West 4th Street. New York, New York 10012-1126
Web page: http://w4.stern.nyu.edu/finance/
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  1. Franks, Julian R. & Torous, Walter N., 1994. "A comparison of financial recontracting in distressed exchanges and chapter 11 reorganizations," Journal of Financial Economics, Elsevier, vol. 35(3), pages 349-370, June. [Downloadable!] (restricted)
  2. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. "Reputation, Renegotiation, and the Choice between Bank Loans and Publicly Traded Debt," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 7(3), pages 475-506. [Downloadable!] (restricted)
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  3. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October. [Downloadable!] (restricted)
  4. Zsuzsanna Fluck & Douglas Holtz-Eakin & Harvey S. Rosen, 1998. "Where Does the Money Come From? The Financing of Small Entrepreneurial Enterprises," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-038, New York University, Leonard N. Stern School of Business-.
  5. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Blackwell Publishing, vol. 51(3), pages 393-414, July. [Downloadable!] (restricted)
  6. Chemmanur, Thomas J & Fulghieri, Paolo, 1994. " Investment Bank Reputation, Information Production, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 49(1), pages 57-79, March. [Downloadable!] (restricted)
  7. James, Christopher, 1995. "When Do Banks Take Equity in Debt Restructurings?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 8(4), pages 1209-34. [Downloadable!] (restricted)
  8. Boot, Arnoud W A & Greenbaum, Stuart I & Thakor, Anjan V, 1993. "Reputation and Discretion in Financial Contracting," American Economic Review, American Economic Association, vol. 83(5), pages 1165-83, December. [Downloadable!] (restricted)
  9. Gavish, Bezalel & Kalay, Avner, 1983. "On the Asset Substitution Problem," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(01), pages 21-30, March. [Downloadable!]
  10. Hayne E. Leland, 1998. "Agency Costs, Risk Management, and Capital Structure," Journal of Finance, American Finance Association, vol. 53(4), pages 1213-1243, 08. [Downloadable!] (restricted)
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  11. Smith, Clifford Jr. & Warner, Jerold B., 1979. "On financial contracting : An analysis of bond covenants," Journal of Financial Economics, Elsevier, vol. 7(2), pages 117-161, June. [Downloadable!] (restricted)
  12. Julian R. Franks & Kjell G. Nyborg & Walter N. Torous, 1996. "A Comparison of UK, US and German Insolvency Codes," Financial Management, Financial Management Association, vol. 25(3), Fall.
  13. Stewart C. Myers, 1998. "Outside Equity Financing," NBER Working Papers 6561, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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