We study portfolio allocation and characterize contracts issued by firms in the international financial market when investors exhibit ambiguity aversion and perceive ambiguity in assets issued in foreign locations. Increases in the variance of their risky production process cause firms to issue assets with a higher variable payment (equity). Hikes in investors’ perceived ambiguity have the oppo...

This paper shows that bonus contracts may arise endogenously as a response to agency problems within banks, and analyzes how compensation schemes change in reaction to anticipated bail-outs. If there is a risk-shifting problem, bail-out expectations lead to steeper bonus schemes and even more risk-taking. If there is an effort problem, the compensation scheme becomes flatter and effort decrease...

Risk management of drawdowns and portfolio optimization with drawdown constraints is becoming increasingly important among practitioners. In this paper, we introduce new types of contracts which depend on the maximum drawdown or on the average drawdown. Trading drawdown contracts would address directly the concerns of portfolio managers who would like to manage them. The maximum or the average ...

There is no clear relationship between the cost, price, and value of enterprise software. This apparently simple fact has involved the buyers and sellers of enterprise software in expensive contract management and acrimonious negotiation, and put IT strategy at risk of short-term tactical purchasing decisions.

We study how limited enforcement of contracts and barriers to business start-up affect the investment in knowledge capital and the adoption of new technologies. We show that barriers to business startup (limited competition) is the most important obstacle to growth. Limited enforceability of contracts is detrimental to growth only if there are barriers to business start-up. Our results are cons...

In the Internet age, e-commerce provides customers global reach to a wide variety of products and plays a dominant role in business activity and competition. Competition is especially aggressive in the online travel domain where wholesalers, e.g. brokerage companies, contract through their contract managers with thousands of hotel brands and trade hotel products (usually hotel nights) for trave...

This study examines how managers’ use of expectation management is affected by labor market mobility, measured with the enforceability of non-compete provisions in employment contracts. We find that managers in states with stricter non-compete enforcement are more likely to manage analyst expectations downward, consistent with labor market immobility exacerbating managers’ incentives to ensure ...

The paper studies optimal property insurance in the presence of equity risk and conversion risk. Equity risk is randomness of the value of a property. It tends to raise demand for conventional insurance on the property. In contrast, conversion risk is randomness in the value the property would have if, after severe damage, it were converted to the highest-valued use. It is distinct from equity ...

Security risk assessments are costly and time consuming and cannot be carried out from scratch each time a component is being reused in a new setting. This calls for a component-oriented approach tightly integrating security assessment in the system development and maintenance process. Such an approach requires a strategy for inferring useful information about the security of a composite compon...

Leasing has become a very important financial instrument today. A large amount of literature discusses the determination of lease rate. In this essay, we focus on the valuations of lease contracts and credit risk. First, we introduce both discrete and continuous time models to determine the equilibrium rate of risk-fiee lease contracts. Then, by relaxing the restriction of riskless leases, a mo...