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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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    File URL: http://jefsite.org/RePEc/pep/journl/jef-2001-06-1-c-so.pdf
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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.
    2. Fama, Eugene F, 1970. "Multiperiod Consumption-Investment Decisions," American Economic Review, American Economic Association, vol. 60(1), pages 163-174, March.
    3. Senbet, Lemma W. & Thompson, Howard E., 1982. "Growth and Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(03), pages 331-340, September.
    4. Stapleton, R C & Subrahmanyam, Marti G, 1978. "A Multiperiod Equilibrium Asset Pricing Model," Econometrica, Econometric Society, vol. 46(5), pages 1077-1096, September.
    5. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    6. Turnbull, Stuart M, 1977. "Market Value and Systematic Risk," Journal of Finance, American Finance Association, vol. 32(4), pages 1125-1142, September.
    7. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-592, July.
    8. Jones, E. Philip & Mason, Scott P., 1980. "Valuation of loan guarantees," Journal of Banking & Finance, Elsevier, vol. 4(1), pages 89-107, March.
    9. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
    10. 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.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Loan Guarantee; Small Business Lending; Agency Problem; Risk; Small Business; Moral Hazard;

    JEL classification:

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

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