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

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  • 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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  • Zsuzsanna Fluck, 1999. "Contingent Control Rights and Managerial Incentives: The Design of Long-term Debt," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-070, New York University, Leonard N. Stern School of Business-.
  • Handle: RePEc:fth:nystfi:99-070
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    File URL: http://www.stern.nyu.edu/fin/workpapers/papers99/wpa99070.pdf
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