Abstract
We analyze incomplete long-term financial contracts between an entrepreneur with no initial wealth and a wealthy investor. Both agents have potentially conflicting objectives since the entrepreneur cares about both pecuniary and non-pecuniary returns from the project while the investor is only concerned about monetary returns. We address the questions of (i) whether and how the initial contract can be structured in such a way as to bring about a perfect coincidence of objectives between both agents (ii) when the initial contract cannot achieve this coincidence of objectives how should control rights be allocated to achieve efficiency? One of the main results of our analysis concerns the optimality properties of the (contingent) control allocation induced by standard debt financing.
Keywords
EconomicsDebtControl (management)Incomplete contractsFinanceDebt financingMicroeconomicsIncentive
Affiliated Institutions
Related Publications
INFORMATIONAL ASYMMETRIES, FINANCIAL STRUCTURE, AND FINANCIAL INTERMEDIATION
Numerous markets are characterized by informational differences between buyers and sellers. In financial markets, informational asymmetries are particularly pronounced. Borrower...
Protection of minority interest and the development of security markets
While excessive regulation is an obstacle to the development of financial markets, we argue that lack of basic rules or poorly enforced regulation may explain the relative impor...
The New Issues Puzzle
Companies issuing stock during 1970 1990, whether an initial public offering (IPO) or a seasoned equity offering (SEO), have been poor long run investments for investors. During...
Legal Determinants of External Finance
ABSTRACT Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcemen...
Social inequalities in the impact of flexible employment on different domains of psychosocial health
Study objectives: (1) To analyse the impact of flexible employment on mental health and job dissatisfaction; and (2) to examine the constraints imposed by flexible employment on...
Publication Info
- Year
- 1992
- Type
- article
- Volume
- 59
- Issue
- 3
- Pages
- 473-473
- Citations
- 2177
- Access
- Closed
External Links
Social Impact
Altmetric
PlumX Metrics
Social media, news, blog, policy document mentions
Citation Metrics
2177
OpenAlex
Cite This
Philippe Aghion,
Patrick Bolton
(1992).
An Incomplete Contracts Approach to Financial Contracting.
The Review of Economic Studies
, 59
(3)
, 473-473.
https://doi.org/10.2307/2297860
Identifiers
- DOI
- 10.2307/2297860