Bankruptcy Risk Induced by Career Concerns of Regulators
Risk Management
2013-12-31 v1 General Finance
Abstract
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, in order to enhance the value of her post career change indexed executive stock option contract with the firm. 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).
Keywords
Cite
@article{arxiv.1312.7346,
title = {Bankruptcy Risk Induced by Career Concerns of Regulators},
author = {Godfrey Charles-Cadogan and John A. Cole},
journal= {arXiv preprint arXiv:1312.7346},
year = {2013}
}