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dc.contributor.authorFluck, Zsuzsanna-
dc.date.accessioned2008-05-29T13:24:29Z-
dc.date.available2008-05-29T13:24:29Z-
dc.date.issued1997-11-15-
dc.identifier.urihttp://hdl.handle.net/2451/26936-
dc.description.abstractThis paper investigates the design of the control rights and the maturity of securities when management has the ability to divert or manipulate the cash flows, and when it is prohibitively costly for a third party, such as court, to verify or prove any managerial wrongdoing. By endogenizing claim structures, control rights and maturity, I derive a diverse set of optimal contracts. Debt with a maturity shorter than the life of the assets is sustainable when investors have the contingent right to liquidate the firm's assets. Long-term debt can be sustained by investors' right to dismiss management and take over the firm as a going-concern in the event of a default. Investors are willing to hold indefinite life equity if they are granted either the unconditional right to liquidate firm's assets or the unconditional right to dismiss management. Finally, convertible debt can be sustained by investors' right to dismiss management and take over the firm in the event of default by the holder's option to convert their debt contract to an equity contract prior to its expiration date. Consistent with empirical evidence, this model predicts that small entrepreneurial firms use short term bank loans, convertible debt, or outside equity at their initial financing stage; as they show evidence of higher profitability, they can secure longer-term financing.en
dc.language.isoen_USen
dc.relation.ispartofseriesFIN-98-035en
dc.subjectsecurity designen
dc.subjectnonverifiability of cash flowsen
dc.subjectmanagerial moral hazarden
dc.subjectcontrol rightsen
dc.subjectmaturityen
dc.subjectmanagerial dismissalen
dc.subjectasset liquidationen
dc.subjectcapital structureen
dc.titleControl Rights and Maturity: The Design of Debt, Equity, and Convertible Securitiesen
dc.typeWorking Paperen
Appears in Collections:Economics Working Papers

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