This paper investigates the effects of heterogeneous beliefs about future firm earnings and agency conflicts on corporate capital structure. We develop a dynamic structural model in which the manager of a firm has discretion in financing and effort and receives dynamic incentives through an explicit contract with shareholders in the presence of heterogeneous beliefs between the two parties. The...

I develop a principal-agent model to analyze the interaction among CEO’s equity holding portfolio, firm’s capital structure and executive compensation contract. Unlike a strand of literatures in corporate finance investigating only capital structure and compensation contract, this paper asks the question whether executive’s equity option holding and firm’s financial leverage jointly affect mana...

We review and extend recent contingent claims models of capital structure. We focus on two models with analytic formulas in perpetual horizonLeland (1994) and Mauer and Sarkar (2004). We implement the investment option in both models in finite horizon with a numerical lattice while maintaining the analytic structure for the capital structure decisions in the second stage by maintaining the perp...

This paper asks how good actual US-fiscal policy was on average and over the cycle in the last 40 years compared to a Ramsey-optimal policy of a frictional labor market model. In our model labor taxes are intertemporally distortive, making the trade-off between capital and labor taxes interesting. Quantitatively, (optimal) taxation results hinge upon an estimate of the intratemporal elasticity ...

This paper studies optimal public debt in a dynastic model with human capital externalities that cause human capital investment (fertility) to be below (above) its socially optimal level. By reducing fertility and raising human capital investment, the optimal debt can exceed 10% of output for plausible parameterizations. r 2005 Elsevier B.V. All rights reserved. JEL classification: E60; H63; O41

We develop a theory of how agency conflicts between the shareholders and debt holders of a financial institution, accounting measurement rules, and prudential capital regulation interact to affect the institution’s capital structure and project choices. We show that, relative to a benchmark historical cost regime in which assets and liabilities on the institution’s balance sheet are measured at...

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funding combination is the most important issue for the companies while they know the amount of required capital. companies should be careful regarding the appliance of financial providing methods compatible with the investment strategy of company and profitability. this study seeks to examine the relationship between the capital structure and the profitability of pharmaceutical companies in ir...

I present a theory of the optimal capital structure and dividend policy for family business groups expanding in countries where the private control benefit is substantial and the market for corporate control is active. Here, issuing debt overcomes the limited dilution capacity of equity, but reduces the expected control benefit by increasing the probability of default. When family business grou...

This article studies an optimal stopping problem with an endogenous constraint on the set of admissible stopping times. The constraint stipulates that continuation is permitted, at any given date t, only if the endogenous reward achieved exceeds a prespecified threshold. Characterizations of the value function and the optimal stopping time are presented. An application to the pricing of corpora...