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Risk-Taking, Agency Problem, and Small Business Loan Guarantee: An Application of Option Pricing Theory

Author

Listed:
  • Jacky C. So

    (Southern Illinois University)

  • Rakesh Bharati

    (Southern Illinois University)

  • Susan Crain

    (Southern Illinois University)

Abstract

We examine the relationship between the small business loan guarantee and the agency problem of small firms. We then recommend financial instruments or financial contracts that can minimize of eliminate the moral hazard problem.

Suggested Citation

  • Jacky C. So & Rakesh Bharati & Susan Crain, 2001. "Risk-Taking, Agency Problem, and Small Business Loan Guarantee: An Application of Option Pricing Theory," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 6(1), pages 24-43, Spring.
    • Handle: RePEc:pep:journl:v:6:y:2001:i:1:p:24-43
    as

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    References listed on IDEAS

    as
    1. Galai, Dan & Masulis, Ronald W., 1976. "The option pricing model and the risk factor of stock," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 53-81.
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    3. Senbet, Lemma W. & Thompson, Howard E., 1982. "Growth and Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(3), pages 331-340, September.
    4. Reinhardt, U E, 1973. "Break-Even Analysis for Lockheed's Tri Star: An Application of Financial Theory," Journal of Finance, American Finance Association, vol. 28(4), pages 821-838, September.
    5. Stapleton, R C & Subrahmanyam, Marti G, 1978. "A Multiperiod Equilibrium Asset Pricing Model," Econometrica, Econometric Society, vol. 46(5), pages 1077-1096, September.
    6. Myers, Stewart C, 1984. "The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    8. Turnbull, Stuart M, 1977. "Market Value and Systematic Risk," Journal of Finance, American Finance Association, vol. 32(4), pages 1125-1142, September.
    9. Jones, E. Philip & Mason, Scott P., 1980. "Valuation of loan guarantees," Journal of Banking & Finance, Elsevier, vol. 4(1), pages 89-107, March.
    10. Smith, Clifford Jr., 1976. "Option pricing : A review," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 3-51.
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    Keywords

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    JEL classification:

    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups

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