Marketable incentive contracts and capital structure relevance

Article Abstract:

This article investigates the claim that debt finance can increase firm value by curtailing managers' access to "free cash flow." We first show that incentive contracts that tie the managers' pay to stockholder wealth are often a superior solution to the free cash flow problem. We then consider the possibility that the manager can trade on secondary capital markets. Liquid secondary markets are shown to undermine management incentive schemes and, in many cases, to restore the value of debt finance in controlling the free cash flow problem. (Reprinted by permission of the publisher.)

Compensation and benefits, Executives, Executive compensation, Debt financing (Corporations), Debt financing, Incentives (Business)

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Investment, uncertainty, and liquidity

Article Abstract:

Analysis of an endogenous financing constraint on a firmEs investment decision indicates that high-liquidity firms have the greatest investment to cash flow sensitivity, and that a higher level of uncertainty produces an ambiguous impact on investment.

Australia, Strategy & planning, Science & research, New Zealand, Planning, Economic aspects, Investments, Comparative analysis, Cash flow, Organizational behavior, Company business planning, Uncertainty, Organizational behaviour

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