The thesis analyzes moral hazard in corporate governance and brings in actual theoretical knowledge on the topic. It examines four examples of the companies which went bankrupt due to moral hazard of their top management: Enron, WorldCom, Parmalat and IPB. All case studies are assessed in accordance with OECD Principles of Corporate Governance. At the end of the thesis, there are mentioned impacts on legislature and suggestions of possible solutions.

The main purpose of my final thesis is to present the development, function and real impact of moral hazard on the process of creating mergers and acquisitions (mainly in the banking sector) in the context of the financial crisis. I seek to analyse the acquisition process and the factors that affect it. Consequently, I focused on the synthesis of these factors, with emphasis on the role of moral hazard, which on the one hand acts as one of the potential culprits of the failure of markets, but on the other hand as the "driving force" for encouraging the creation of mergers and acquisitions in a financial crisis.

This paper will introduce the reader to the issues of moral hazard in a principal-agent setting, with the primary focus on the incentive pay models of moral hazard. Firstly, with an introduction and analysis of various microeconomic models designed to alleviate the problems of moral hazard, and secondly, with an analyses of these models in the context of a specific company, the aim of this thesis is to offer a comprehensive understanding of the specific problems caused by moral hazard in the principal-agent problem, as well as the mechanisms used to lessen such problems in the real business environment and their connection to the theoretical microeconomic models.

This master thesis deals with causes and some of the main instituonal answers to the financial crisis of 2007-2009. The thesis also ppresents a brief historical overview of US financial crisis. The main aim of the first chapter is to decide whether the US historical crisis have something in common. The answer is that the past crisis really share something and the difference is rather in historical circumstances. The second chapter is dedicated to some of the financial crisis causes such as Community Reinvestment Act,Gramm Leach Bliley Act, Commodity Futures Modernization Act and also to the role of moral hazard. This thesis is of a firm belief that the only aspect that can be blamed is the phenomenon of moral hazard. The last chapter is focused on the main instituonal answers to the crisis. Dodd-Frank Act, Volcker rule, reorganization of derivative market, some of the changes in rating agencies regulation and also BASEL III consequences for capital requirements are all under the radar.

This dissertation focuses on understanding and modeling how contracts function in practice. The existing principal-agent literature usually involves two players: a principal (investors) provides capital to an agent (managers or entrepreneurs) on a project subject to asymmetric information. However, many real financing arrangements between firms and investors are intermediated by another agent - a bank, a venture capitalist, or a fund family, etc. In these three-tier settings, there are two contracts to deal with two conflicts of interest - a framework that simply hasn't been studied thoroughly in the principal-agent literature. The first chapter is co-authored with my Ph.D. advisors Prof. Andrea M. Buffa and Prof. Lucy White. In this chapter, we consider a general economic setting in which a principal has all the bargaining power, and she has to hire two agents exerting complementary efforts on her project. The principal chooses from two contracting schemes - direct contracting and delegated contracting - whether to contract directly with both agents or instead to contract with one agent alone and delegate this agent to contract with the other agent. We find that delegated contracting can be optimal when contracts are private. With direct contracting, each agent fears that the principal will opportunistically reduce the other agents' bonus, muting incentives to exert effort. With delegated contracting, one agent observes the contract of the agent he hires, alleviating effort concerns, but allowing rent extraction. In delegating, the principal trades off the losses of control and rent extraction by the hiring agent against the gains from improved observability and effort. We find that it is optimal for the principal to delegate when the hiring agent is sufficiently skilled or the effort complementarity is sufficiently strong. The second chapter considers an entrepreneurial finance setting in which an entrepreneur needs two things - expert advice and capital - in addition to her own idea and effort. The entrepreneur has all the bargaining power, and she chooses to finance her project from two sources: angels and venture capitalists. Venture capitalists are different from angels in two aspects. First, angels are individuals investing their own capital, while venture capitalists are intermediaries investing on behalf of limited partners (LPs). Second, venture capitalists provide expert advice while angels don't. With angel financing, the entrepreneur obtains expert advice from a consultant who is independent of the angels. With venture capital financing, the entrepreneur obtains expert advice bundled together with capital from a venture capitalist only. I show that when contracts are private, raising capital directly from angels is more expensive because the entrepreneur has the incentive to cut down on expert advice to save money. Angels optimally set a higher cost of capital to be compensated for the lack of verifiability. On the other hand, LPs are able to infer the amount of expert advice through the venture capitalist's shares in the venture. I show that venture capital financing is optimal for the entrepreneur in competitive labor and capital markets. Moreover, convertibles arise endogenously as the optimal security held by the venture capitalist. Convertible securities have features of both debt and equity, allowing the entrepreneur to provide enough incentives to the venture capitalist while minimizing the cost of capital from the LPs. The third chapter further analyzes the entrepreneur's optimal financing problem in which venture capital is scarce relative to angel capital. Compared with competitive venture capital, the venture capitalist's compensation stays the same while the LPs demand a higher return. The entrepreneur and the venture capitalist share the extra cost of financing, and their expected payoffs and the project's profitability decrease in the scarcity level of venture capital. With venture capital financing, the entrepreneur trades off the loss due to the scarcity of venture capital against the gains from the improved transparency in contracting. I find that angel financing is optimal when venture capital is sufficiently scarce. Compared with angel financing, the investors as LPs demand a higher return than angels only when venture capital is scarcer than what it makes angel financing optimal.

Titel: Relationen mellan chefer och medarbetare - Ett principal-agent-perspektiv Universitet: Malmö Universitet Kurs: TR128C – Företagsekonomi: Examensarbete i Transport Management Författare: Jens Andersson, Olle Karlsson & Mattias Pettersson Handledare: Benedikte Borgström Nyckelord: Agentteori, agentproblem, måldivergens, informationsasymmetri, moral hazard, adverse selection, programmerbarhet Syfte: Att utifrån ett principal-agent-perspektiv studera hur relationen mellan chefer och medarbetare i den studerade miljön påverkas av förekomsten av informationsasymmetri och skilda målbilder, samt hur motivationen att prestera på arbetsplatsen kan påverkas av incitamentsstrukturer kopplade till kontraktsupplägget och olika nivåer av övervakning. Metod: Studien har genomförts via en kvalitativ ansats där data insamlats genom intervjuer, observationer och textanalys. Teori: Studiens teoretiska ramverk bygger på principal-agent-teorin och dess komponenter med fokus på informationsasymmetri och skilda målbilder. Slutsatser: I den studerade miljön där relationen mellan principal och agent kännetecknas av hög informationsasymmetri, hög programmerbarhet och parterna motiveras av olika målbilder står principalen inför valet att antingen komplettera ett beteendebaserat kontrakt med tillräckliga övervakningsmekanismer för att utröna agentens beteende, eller försöka upprätta ett resultatbaserat kontrakt. Hög informationsasymmetri kopplat till ett beteendebaserat kontrakt riskerar att lägga grunden för problem kopplade till moral hazard då agenterna blir helt fria att agera efter sina egna målbilder. / Title: The relationship between managers and workers - An agency perspective University: Malmö Universitet Course: TR128C – Business Administration: Bachelor thesis in Transport Management Writers: Jens Andersson, Olle Karlsson & Mattias Pettersson Mentor: Benedikte Borgström Keywords: Agency theory, agency problem, goal divergence, information asymmetry, moral hazard, adverse selection, programmability Purpose: From an agency perspective study how the relationship between managers and workers in the studied environment is affected by the existence of information asymmetry and diverging goals, and also how the motivation to perform at the workplace can be affected by different incentive structures related to the contract form and different levels of surveillance. Methods: The study has been conducted via a qualitative approach and the data has been collected through interviews, observations and text analysis. Theories: The studies theoretical framework is based on the agency theory and its components with a focus on information asymmetry and diverging goals. Conclusion: In the studied environment the relationship between principal and agent is characterized by asymmetrical information flows, high programmability, and diverging goals. This leaves the principal to either reinforce a behavioral based contract with sufficient surveillance to uncover the agent’s behavior, or to try and establish a contract based on results. A high degree of information asymmetry in combination with a behavioral based contract runs the risk of laying the foundation for problems related to moral hazard as the agents are free to act according to their own personal goals.

Prior literature suggests two competing theories regarding the role of venture capitalists (VCs) in their portfolio companies. The VC monitoring hypothesis argues that VCs effectively resolve the managerial agency problem through close monitoring and restraining managers' earnings management behavior. The VC moral hazard hypothesis argues that VCs aggravate the private benefits agency problem by exerting influence over managers to artificially inflate exit stock price through earnings management. Using a sample of IPO firms between 1987 and 2002, after controlling for the magnitude of accruals manipulation (AM), I compare the magnitude of real activities manipulation (RM) between venture-backed and non-venture-backed companies. I find that relative to non-venture-backed companies, venture-backed companies show significantly less RM in the first post-IPO fiscal year. The results are robust after controlling for the VC selection endogeneity. The finding supports the VC monitoring hypothesis that VCs restrain managers' RM behavior. Furthermore, I document that venture-backed companies exhibit a significant difference from non-venture-backed companies only in the first post-IPO fiscal year. The difference between the two groups in either the IPO year or the second post-IPO fiscal year is not significant, or at best, is weak. This finding is consistent with the argument that VCs tighten their control during the lockup expiration period when insiders such as managers or founders have strong incentives to inflate earnings. By the end of the second post-IPO fiscal year when VCs exit the portfolio companies, their impact on portfolio companies' RM decreases dramatically which makes the difference between the two groups less significant. In addition, using a sample of venture-backed IPOs from 1987 to 2002, I find that companies backed by high-reputation VCs show significantly less RM than those backed by low-reputation VCs in the first post-IPO fiscal year. The results are robust to alternative VC reputation proxies. This finding is consistent with the argument that high-reputation VCs have more incentives to preserve reputation and better ability to monitor managers than low-reputation VCs.

This paper investigates whether “skin in the game” has an impact on the actively managed funds’ performance. Based on the agency theory where an agent and a principal in different scenarios might have access to different information etc., can result in differences in financial decisions. In this case it could be whether to invest in the fund they manage or not. We examine the time period from 2018 to 2020, where each year has been analyzed as well as the three-year period. To perform the tests, information on the actively managed funds’ managers has been collected from 160 funds, along with the returns of each year and fund. Both funds with skin in the game and without have been found in Large Value Funds at Morningstar, where all of them are actively managed value or equity funds. We have analyzed 80 funds with skin in the game and 80 funds without. After comparisons to the index Russel 1000 Value Total Return USD, we tested whether there are significant differences in performance between the two groups. What the results indicate is that differences are significant which might be due to the fact that managers have skin in the game, but also that these funds tend to perform better.

Magister Legum - LLM / The research will evaluate and discuss the importance of Deposit Insurance Systems (DIS) and the necessity of having this system. Important to the evaluation is an analytical consideration of how the South African Reserve Bank (SARB), the National Treasury (NT) and other global financial bodies proposed the approach thereof. Insofar as most jurisdictions had already adopted the DIS as encouraged by the international financial institutions, the study shall determine whether it is plausible for South Africa to derive guidance in her approach taking into account the potential risks posed by the safety-net.

This dissertation explores the role of information frictions in the design of financial securities, the pricing of securities, and their business cycle implications. The first essay studies the risk- shifting problem between bondholders and shareholders, and the moral hazard problem between shareholders and the manager. Although, these two problems have been studied separately, my model is the first tractable frame-work to study these two frictions jointly. Using my model, I explore: i) How the presence of managerial moral hazard affects the risk-shifting problem, and ii) How optimal policies of the firm change in terms of leverage, managerial compensation, and investment decisions when the two problems are considered jointly. I show that the optimal amount of risk-shifting is amplified in the presence of managerial moral hazard. Moreover, my model delivers a non-monotonic relation between risk-shifting and leverage. This non-monotonicity has the potential to reconcile seemingly contradictory empirical evidence on the sign of this relation. The second essay (coauthored with Jianjun Miao) studies the design of an optimal contract for the manager when the shareholders are concerned about model misspecification. The model delivers counter-cyclical firm level equity premium, and has interesting implications for security design. The third essay incorporates accounting practices into models that generate business cycles through borrowing constraints. I show that the interaction of accounting frictions with the borrowing constraint has implications for the persistence and amplification of macroeconomic shocks.