IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Essays on financial contracting

  • Vauhkonen, Jukka

    ()

    (Bank of Finland Research)

Registered author(s):

    This thesis consists of an introductory chapter and four essays on financial contracting theory. In the first essay, we argue that many adverse selection models of standard one-period loan contracts are not robust to changes in market structure. We argue that debt is not an optimal contract in these models, if there is only one (monopoly) financier instead of a large number of competitive financiers. In the second essay, we examine the welfare effects of allowing banks to hold equity in their borrowing firms. According to the agency cost literature, banks’ equity stakes in their borrowing firms would seem to alleviate firms’ asset substitution moral hazard problem associated with debt financing. We argue that this alleged benefit of banks’ equity holding is small or non-existent when banks are explicitly modelled as active monitors and firms have access also to market finance. In the third essay, we extend the well-known incomplete contracting model of Aghion and Bolton to attempt to explain the empirical observation that the allocation of control rights between entrepreneur and venture capitalist is often contingent in the following way. If the company’s performance (eg earnings before taxes and interest) is bad, the venture capital firm obtains full control of the company. If company performance is medium, the entrepreneur retains or obtains more control rights. If company performance is good, the venture capitalist relinquishes most of his control rights. The fourth essay is a short note, in which we show that the main result of the model of Aghion and Bolton concerning optimality properties of contingent control allocations in an incomplete contracting environment holds only if an additional condition is satisfied.

    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.

    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/erillisjulkaisut/Documents/E30.pdf
    Download Restriction: no

    Paper provided by Bank of Finland in its series Scientific Monographs with number E:30/2004.

    as
    in new window

    Length: 141 pages
    Date of creation: 29 Dec 2004
    Date of revision:
    Handle: RePEc:hhs:bofism:2004_030
    Contact details of provider: Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/

    More information through EDIRC

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:hhs:bofism:2004_030. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman)

    or (Päivi Määttä)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.