Bankruptcy risk induced by career concerns of regulators ¬リニ
نویسندگان
چکیده
We introduce a model in which a regulator employs mechanism design to embed her human capital beta signal(s) in a firm’s capital structure. This can enhance her compensation at the firm, and the value of her contract with the firm in the form of an executive stock option. We prove that the agency cost of this revolving door behavior increases the firm’s financial leverage, bankruptcy risk, and affects estimation of firm value at risk (VaR). 2014 Elsevier Inc. All rights reserved. http://dx.doi.org/10.1016/j.frl.2014.02.001 1544-6123/ 2014 Elsevier Inc. All rights reserved. q This paper is based on Sections 2.4 and 2.5 of the paper entitled ‘‘A Regulator’s Exercise of Career Option To Quit and Join A Regulated Firm’s Management with Applications to Financial Institutions’’. We are indebted to Samuel Myers, Jr. and Gary Dymski for detailed comments, and Haim Abraham for helpful conservations on earlier drafts. We thank conference participants at the Academy for Behavioral Finance & Economics Meeting 2012, Robert B. Durand (discussant), Southern Finance Association Meeting 2012, Rachel Graefe-Anderson (discussant), Paul Kupiec, Leonard Nakamura, Doug Robertson, Ernesto Dal Bó, Oliver Martin, Linwood Tauheed, Michael Crew and Rebel Cole for their comments and advice, and Sam Cadogan for his research assistance. We thank Ramazan Gençay (Editor), an anonymous co-editor, and two anonymous referees for helpful comments and suggestions-especially the request to include a solution to the regulator’s program which generated Section 3.1. Cadogan gratefully acknowledges the research support of the Institute for Innovation and Technology Management (IITM); and Research Unit in Behavioural Economics and Neuroeconomics (RUBEN). Most importantly, he is indebted to Jan Kmenta for the idea of embedding behavioural parameters in decision variables. Any errors which may remain are the authors’. ⇑ Corresponding author.Tel.: +1 (336) 285 3329; fax: +1 (336) 256 2055. E-mail addresses: [email protected] (J.A. Cole), [email protected] (G. Cadogan). 1 Tel.: +1 (786) 329 5469. Finance Research Letters 11 (2014) 259–271
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