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DISCUSSION
Decentralized Investment Management
Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation: Discussion
A. W. Sametz, Accelerating Inflation, Technological Innovation, and the Decreasing Effectiveness of Banking Regulation: Discussion, The Journal of Finance, Vol. 36, No. 2, Papers and Proceedings of the Thirty Ninth Annual Meeting American Finance Association, Denver, September 5-7, 1980 (May, 1981), pp. 393-395
The Effects of International Operations on the Market Value of the Firm: Theory and Evidence
Resolving the Agency Problems of External Capital through Options
ABSTRACT This paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by Jensen and Meckling (1976). These problems are precipitated by managerial incentives a) to consume excessive non‐pecuniary benefits or perquisites beyond the optimal level for sole ownership and b) to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors. These incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner‐manager and external financiers, respectively. The resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt.