A Theory of Outside Equity: Financing Multiple Projects

Spiros Bougheas and Tianxi Wang

No 7466, CESifo Working Paper Series from CESifo

Abstract: In the financial economics literature debt contracts provide efficient solutions for addressing managerial moral hazard problems. We analyze a model with multiple projects where the manager obtains private information about their quality after the contract with investors is agreed. The likelihood of success of each project depends on both its quality and the level of effort exerted on it by the manager. We find that, depending on the distribution of the quality shock, the optimal financial contract can be either debt or equity.

Keywords: outside equity; financial contracts; principal agent model (search for similar items in EconPapers)
JEL-codes: D86 G30 (search for similar items in EconPapers)
Date: 2019
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Related works:
Journal Article: A theory of outside equity: Financing multiple projects (2021)
Working Paper: A theory of outside equity: Financing multiple projects (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7466

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