Financial Innovation And Delegation Of Control  

Oleh:

Instefjord, Norvald

Jenis: Article from Journal - ilmiah internasional
Dalam koleksi: The Economic Journal (EBSCO) vol. 108 no. 451 (Nov. 1998), page 1707-1732.
Fulltext: 1707.pdf (324.54KB)

Isi artikel

The literature on security design has traditionally assumed that control of investment and production rests with the entrepreneur even after flotation. In this article I relax this assumption, which is both unnecessarily strict and unrealistic. The contribution is twofold. First, I show that when control is delegated during flotation, financial innovation is a trade off between agency costs (arising from principal agent relationships) and targeting costs (arising from the inability to split the cash flow). Second, I show that unlevered equity or the use of debt which can be issued without defaulting in equilibrium, are optimal means of financing.

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