Bankruptcy Risk Induced by Career Concerns of Regulators

Godfrey Charles-Cadogan and John A. Cole

Papers from arXiv.org

Abstract: We introduce a model in which a regulator employs mechanism design to embed her human capital beta signal(s) in a firm's capital structure, in order to enhance the value of her post career change indexed executive stock option contract with the firm. We prove that the agency cost of this revolving door behavior increases the firm's financial leverage, bankruptcy risk, and affects estimation of firm value at risk (VaR).

Date: 2013-12
New Economics Papers: this item is included in nep-cta, nep-hrm and nep-rmg
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Journal Article: Bankruptcy risk induced by career concerns of regulators (2014)
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