We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
A theory of predation based on agency problems in...
- Authors
Bolton, Patrick; Scharfstein, David S.
- Abstract
By committing to terminate funding if a firm's performance is poor, investors can mitigate managerial incentive problems. These optimal financial constraints, however, encourage rivals to ensure that a firm's performance is poor; this raises the chance that the financial constraints become binding and induce exit. We analyze the optimal financial contract in light of this predatory threat. The optimal contract balances the benefits of deterring predation by relaxing financial constraints against the cost of exacerbating incentive problems.
- Subjects
BUSINESS enterprises; FINANCIAL aid contracts; INVESTORS; CONTRACTS; FINANCIAL performance; BUSINESS forecasting; PROBLEM solving
- Publication
American Economic Review, 1990, Vol 80, Issue 1, p93
- ISSN
0002-8282
- Publication type
Article