A continuous-time agency model of optimal contracting and capital structure
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A continuous-time agency model of optimal contracting and capital structure by Peter M. DeMarzo

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Published by National Bureau of Economic Research in Cambridge, MA .
Written in English


Book details:

Edition Notes

StatementPeter M. DeMarzo, Yuliy Sannikov.
SeriesNBER working paper series ;, working paper 10615, Working paper series (National Bureau of Economic Research : Online) ;, working paper no. 10615.
ContributionsSannikov, Yuliy., National Bureau of Economic Research.
Classifications
LC ClassificationsHB1
The Physical Object
FormatElectronic resource
ID Numbers
Open LibraryOL3476066M
LC Control Number2005615523

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Get this from a library! A continuous-time agency model of optimal contracting and capital structure. [Peter M DeMarzo; Yuliy Sannikov; National Bureau of Economic Research.] -- "We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (), except that the agent's cash.   The model provides a simple dynamic theory of security design and optimal capital structure. Keywords: Optimal contracting, security design, capital structure, debt maturity, agency, moral hazard, principal agent, continuous time, incentives, cash flow diversion, asset substitution, default, credit line, compensating balance, debt, equity Cited by: Downloadable! We consider a principal-agent model in which the agent needs to raise capital from the principal to finance a project. Our model is based on DeMarzo and Fishman (), except that the agent's cash flows are given by a Brownian motion with drift in continuous time. The difficulty in writing an appropriate financial contract in this setting is that the agent can conceal and divert. A Continuous-Time Agency Model of Optimal Contracting and Capital Structure Peter M. DeMarzo and Yuliy Sannikov NBER Working Paper No. June JEL No. D82, G32, E24, J41, G21 ABSTRACT We consider a principal-agent model in which the agent needs to raise capita l from the principal to finance a project.

We introduce techniques to solve for the optimal contract (given the incentive constraints) in continuous time, and study the properties of the capital structure that implements the contract. The implementation involves a credit line, long-term debt and equity, as in a discrete-time model of DeMarzo and Fishman (). Optimal Security Design and Dynamic Capital Structure in a Continuous-Time Agency Model PETER M. DEMARZO AND YULIY SANNIKOV * Abstract We derive the optimal dynamic contract in a continuous-time principal-agent setting, and implement it with a capital structure (credit line, long-term debt, and equity) over which the agent controls the payout. 2 General Model and Optimal Contracting General Model We study an innite-horizon, continuous-time agency problem. The rm (investors) hires an agent to operate the business. The rm produces cash ows t per unit of time, where t follows the stochastic process d t = (t;a t)dt+˙(t)dZ t: (1) Here,Z = fZ t;F. This paper presents a continuous time model of a firm that can dynamically adjust both its capital structure and its investment choices. In the model we endogenize the investment choice as well as firm value, which are both determined by an exogenous price process that .

Optimal Security Design and Dynamic Capital Structure in a Continuous-Time Agency Model PETER M. DEMARZO and YULIY SANNIKOV* ABSTRACT We derive the optimal dynamic contract in a continuous-time principal-agent setting, and implement it with a capital structure (credit line, long-term debt, and equity) over which the agent controls the payout. Request PDF | A Continuous-Time Agency Model of Optimal Contracting and Capital Structure | We consider a principal-agent model in which the agent needs to raise capital from the principal to.   We derive the optimal dynamic contract in a continuous‐time principal‐agent setting, and implement it with a capital structure (credit line, long‐term debt, and equity) over which the agent controls the payout policy.   On the contracting side, I bond the agent and shareholders together through an optimal contract solved in Section 2. 1 Furthermore, shareholders and the agent can revise the compensation contract dynamically, so that the compensation contract is a best response to the capital structure. 2 Essentially, these simplifying assumptions capture the.