Enterprise's Investment Financing And Moral Hazard

As two indispensable aspects in the process of firm's fund movement,the investment and financing decisions are playing an important role in the firm's survival and development.However,under the separation of ownership and management right,moral hazard has a significant impact on firm's investment and financing decisions.Thus,this dissertation tries to model the moral hazard problem between managers and shareholders along with investment and financing decisions in a unified framework by the theory of optimal stochastic control and the method of martingale.The key issues are to analyze the influence mechanism agency conflicts on the enterprise's decision-makings,as well as the interaction relationship among these decision-makings.The main purpose is to reveal the problems such as inefficient investment and financing preference under optimal contract in both qualitative and quantitative aspects.First,we study economic rationale for using performance-sensitive debt(PSD)in a dynamic principal-agent model,the result shows that PSD can raise the optimal effort policy compared with common bond financing,and PSD also partially solves potential future conflicts related to debt overhang.PSD reduces the level of bankruptcy and leverage ratio and initial coupon of PSD exhibits a converse U-shaped pattern with the degree of risk compensation.With the increasing of volatility,the optimal effort policy is reduced.Second,we develop a dynamic principal-agent model which is based on expand investment and debt financing.Firstly,we consider an optimal contract design problem that assumes unobservable effort and savings of agent.Stochastic differential equation of the agent's continuation value function is provided by using martingale method.Then we obtain a necessary and sufficient condition for the equilibrium evolution of agent's value function when contract is incentive compatible.Furthermore,this paper gets the differential equation for the enterprise value where the solution of contracting and optimal level of investment trigger can be obtained at the same time.Finally,we show and explain the different results of optimal effort policy with the corporate cash flow changes under different financing situation.The relationships between the investment trigger level(equity value)and the related coefficients are also discussed.Third,we develop a dynamic agency model which is based on Poisson jump and manager's risk-taking.Firstly,we consider an optimal contract design problem that assumes unobservable effort and risk-taking of agent.Equilibrium evolution of agent's value function is provided by using martingale method.Then we provide sufficient and necessary conditions for incentive compatibility contract.Furthermore,this paper gets the differential equation for the enterprise value where the optimal dynamic investment strategies can be obtained at the same time.Numerical analysis shows that,the opportunity to take risk has negative impact on the equity value and optimal investment.Taking into account punishment cost,shareholders should allow a manager's risk-taking behavior within a certain extent.Finally,the relationships between level of risk-taking and related coefficients are also discussed.Forth,we provides an analytically tractable continuous-time model in which a time-inconsistent manager can divert part of the firm's cash flow as private benefits at the expense ofoutside shareholders.We endogenously determine the investment scale,investment threshold,optimal coupon and default threshold under managerial discretion.We demonstrate that time-inconsistent managers each have a trade-off between the timing and scale of investment.By exploring agency costs as dev iations from a value-maximizing investment policy,we find that agency costs of naive manager are higher than the sophisticated manager's.Notably,our analysis reveals that managers having acertain degree of time-inconsistent preferences can ameliorate manager-shareholder conflicts.We also document that the impacts of corporate governance variables such as the managers' property parameter and/or the level of managers' ownership depend on the managers' beliefs regarding their future time-inconsistent behavior.At last,we develop an incomplete-markets model to examine the impact of managerial compensation packages,namely cash salary and stock,and reservation income(outside options)on the credit spreads and capital structure choice of a risk-averse manager who is exposed to idiosyncratic risk and faces costly effort.Our model predicts an inverted U-shape relation between credit spreads(market leverage)and managerial ownership stake,which reconciles empirical findings that are inconsistent with previous theories.Moreover,in contrast to the predictions of previous models,we find that credit spreads decrease with the manager's salary,whereas they increase with the manager's reservation income.Finally,we also demonstrate that the relationship between pay-performance sensitivity(PPS)and the firm's market leverage depends on the manager's ownership stake and salary;this prediction provides novel empirical tests.