Optimal Ownership and Capital Structure with Agency Conflicts
Zhu, Nanhui
We develop a continuous-time model examining agency conflicts among controlling shareholders (managers), minority shareholders, and creditors in corporate investment decisions. The manager’s private benefits encourage overinvestment, while their equity stake and debt overhang lead to underinvestment. We show these offsetting incentive effects can achieve optimal investment timing under certain conditions. Agency costs exhibit U-shaped relationships with private benefits, tax rates, volatility, m