Journal of Financial Intermediation Vol. 2 No. 3 1992
Debt and warrants: Agency problems and mechanism design
Abstract
This paper shows that a debt contract with warrants for the lender and cash/equity settlement options for the entrepreneur-borrower is the optimal contract in a setting with moral hazard and unverifiable states of nature. This contract makes it possible to contract optimally ex ante on unverifiable states; debt obligations are adjusted to state realizations so that debt is made safer. Moral hazard is reduced as a result.
- DOI
- 10.1016/1042-9573(92)90001-t
- Volume
- 2
- Issue
- 3
- Pages
- 237-254
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref