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| Author: | Fluck, Z. |
| Title: | Optimal financial contracting: debt versus outside equity |
| Journal: | Review of Financial Studies
1998 : SUMMER, VOL. 11:2, p. 383-418 |
| Index terms: | FINANCE DEBT EQUITY CAPITAL |
| Language: | eng |
| Abstract: | This article presents a theory of outside equity based on the control rights and the maturity design of equity. The author shows that outside equity is a tacit agreement between investors and management supported by the equity- holders' right to dismiss management regardless of performance and by the lack of a prespecified expiration date on equity. As a tacit agreement outside equity is sustainable despite management's potential for manipulating the cash flows and regardless of how costly it is for equityholders to establish a case against managerial wrongdoing. |
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