Financial Contracting under Risk Neutrality, Limited Liability and Ex ante Asymmetric Information
This paper derives equilibrium financial contract forms in a risk-neutral capital market with asymmetrically informed borrowers/entrepreneurs and investors. In doing so, the analysis generalizes the work of D. DeMeza and D. Webb (1987) by allowing for arbitrary profit distributions, arbitrary contract forms, and variab le investment choices. The main result of this inquiry is as follows. W hen higher-quality entrepreneurs have "better" ex post profit distributions (in the sense of the monotone likelihood ratio propert y), equilibrium contracts take a standard debt form so long as admissibl e investor payoff functions are monotone nondecreasing in firm profit. Without the monotonicity constraint, contracts often take a differen t, "live-or-die" form. Copyright 1993 by The London School of Economics and Political Science.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Volume (Year): 60 (1993)
Issue (Month): 237 (February)
|Contact details of provider:|| Postal: Houghton Street, London WC2A 2AE|
Phone: +44 (020) 7405 7686
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0013-0427
More information through EDIRC
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0013-0427|