Why do reputable agents work for safer firms?

Fei Li and Masako Ueda

Finance Research Letters, 2009, vol. 6, issue 1, 2-12

Abstract: Safer firms receive funding from reputable venture capitalists and offer new securities underwritten by reputable investment banks. We offer a new explanation for these facts employing a moral-hazard model in which a firm and an agent are matched endogenously. More reputable agent's effort has a greater impact on output. Safer firm's output reflects the agent's hidden effort more accurately and therefore the agent's pay scheme tied with the output powerfully motivates her to exert effort. In equilibrium, a safer firm should be matched with a reputable agent since this combination allows to maximize effort of the reputable agent.

Keywords: Moral; hazard; Matching; Project; risks (search for similar items in EconPapers)
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544-6123(08)00063-9
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:6:y:2009:i:1:p:2-12

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().