Business Commons^™

Security Design That Addresses Agency Conflicts And Information Asymmetry, Manish Tewari

Electronic Theses and Dissertations

This study focuses on the role of structured derivative securities to meet diverse corporate financing objectives in the light of agency theory and asymmetric information. The focus is on the nonconvertible callable-puttable fixed-coupon bonds. The primary objective is to discern the marginal role of the put and put-deferred features in addressing the agency issues and asymmetric information. A sample of (159) securities issued over the period (1977-2005) are examined using Merton's (1974) structural contingent claims valuation model. The put option as well as the deferred put option incorporated in these securities is found to mitigate the asset substitution issue. It …