Optimal Financial Instruments

Jaime F. Zender

120 citations0/0 files storedThe Journal of Finance

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Corporate Finance and Governance Capital Investment and Risk Analysis Private Equity and Venture Capital

Abstract

ABSTRACT Debt and equity are developed as optimal financial instruments in a model where cash flows and control rights are allocated to investors endogenously. When investment decisions must be made by a single party, the debtholder's cash flows are fixed in order to provide the equityholder with efficient incentives for investment. Ownership of control may be transferred to the debtholder to attenuate the impact of asymmetric information, concerning the investment opportunity, on the efficiency of the decision making.

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References

1958The Cost of Capital, Corporation Finance and the Theory of Investment 1977Determinants of corporate borrowing 2008The cost of capital, corporation finance and the theory of investment 1984Financial Intermediation and Delegated Monitoring 1990Property Rights and the Nature of the Firm 1979Optimal contracts and competitive markets with costly state verification 1979On financial contracting 1988One share-one vote and the market for corporate control

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