continuous-time agency model of optimal contracting and capital structure
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continuous-time agency model of optimal contracting and capital structure

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Published by National Bureau of Economic Research in Cambridge, Mass .
Written in English

Subjects:

  • Contracting out -- Mathematical models

Book details:

Edition Notes

StatementPeter M. DeMarzo, Yuliy Sannikov.
SeriesNBER working paper series -- no. 10615., Working paper series (National Bureau of Economic Research) -- working paper no. 10615.
ContributionsSannikov, Yuliy., National Bureau of Economic Research.
The Physical Object
Pagination45 p. :
Number of Pages45
ID Numbers
Open LibraryOL17623529M
OCLC/WorldCa56470797

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  The model provides a simple dynamic theory of security design and optimal capital structure. Keywords: Optimal contracting, security design, capital structure, debt maturity, agency, moral hazard, principal agent, continuous time, incentives, cash flow diversion, asset substitution, default, credit line, compensating balance, debt, equity Cited by: Request PDF | A Continuous-Time Agency Model of Optimal Contracting and Capital Structure | We consider a principal-agent model in which the agent needs to raise capital from the principal to. Downloadable! We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (), except that the agent's cash flows are given by a Brownian motion with drift in continuous time. The difficulty in writing an appropriate financial contract in this setting is that the agent can conceal and divert. Optimal Security Design and Dynamic Capital Structure in a Continuous-Time Agency Model PETER M. DEMARZO AND YULIY SANNIKOV * Abstract We derive the optimal dynamic contract in a continuous-time principal-agent setting, and implement it with a capital structure (credit line, long-term debt, and equity) over which the agent controls the payout policy.

We introduce techniques to solve for the optimal contract (given the incentive constraints) in continuous time, and study the properties of the capital structure that implements the contract. The implementation involves a credit line, long-term debt and equity, as in a discrete-time model of DeMarzo and Fishman (). The agent is compensated with equity alone. Unlike the discrete time setting, our differential equation for the continuous-time model allows us to compute contracts easily, as well as compute comparative statics. The model provides a simple dynamic theory of security design and optimal capital structure. This paper presents a continuous time model of a firm that can dynamically adjust both its capital structure and its investment choices. In the model we endogenize the investment choice as well as firm value, which are both determined by an exogenous price process that . *Sannikov (), “A Continuous-Time Version of the Principal-Agent Problem,” Review of Economic Studies. Fudenberg and Tirole (), “Moral Hazard and Renegotiation in Agency Contracts,” Econo-metrica. DeMarzo and Sannikov (), “A Continuous-Time Agency Model of Optimal Contracting and Dynamic Capital Structure,” Journal of.

Get this from a library! A continuous-time agency model of optimal contracting and capital structure. [Peter M DeMarzo; Yuliy Sannikov; National Bureau of Economic Research.] -- "We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (), except that the agent's cash. 2 General Model and Optimal Contracting General Model We study an innite-horizon, continuous-time agency problem. The rm (investors) hires an agent to operate the business. The rm produces cash ows t per unit of time, where t follows the stochastic process d t = (t;a t)dt+˙(t)dZ t: (1) Here,Z = fZ t;F. Continuous-time contracting Capital structure CARA (exponential) preference Firm growth Size-heterogeneity Pay-performance sensitivity abstract This paper studies the optimal compensation problem between shareholders and the agent in the Leland () capital structure model, and finds that the debt-overhang. We consider dynamic contracting problems in which a risk-neutral principal interacts repeatedly with a risk-averse agent under asymmetric infor-mation. These are benchmark models in labor economics, corporate finance (CEO compensation and optimal capital structure), and the literatures on op-timal dynamic insurance and taxation.