Optimal contract theory with time-inconsistent preferences |
| |
Institution: | 1. School of Finance, Shanghai University of Finance and Economics, Shanghai 200433, PR China;2. Shanghai Key Laboratory of Financial Information Technology, School of Finance, Shanghai University of Finance and Economics, Shanghai 200433, PR China;1. College of Finance and Statistics, Hunan University, China;2. School of Mathematics, Shanghai University of Finance and Economics, China |
| |
Abstract: | This paper incorporates managers' time-inconsistent preferences into the classical DeMarzo and Sannikov (2006) contract model to study corresponding impacts on the optimal contract, corporate financial policies, and the optimal capital structure. The extended model shows that the impatience of the time-inconsistent agent has positive effects on the optimal payout decision which is opposite to DeMarzo and Sannikov (2006) and consequently provides a guideline to tailor the contract between investors and the agent. It also shows in the optimal capital structure, the total debt capacity shrinks with the degree of the agent's time inconsistency, and the long-term one shrinks more. In addition, our model predicts that the agent's time inconsistency not only imposes significant limits on the use of long-term debt but also has great effects on firms' capital structures. Thus our finding can potentially explain observed cross-sectional differences in firms' capital structures. |
| |
Keywords: | |
本文献已被 ScienceDirect 等数据库收录! |
|