caa a22 4500 60547589X CHVBK 20210128100354.0 cr unu---uuuuu 210128e20150801xx s 000 0 eng 10.1007/s00199-014-0856-5 doi (NATIONALLICENCE)springer-10.1007/s00199-014-0856-5 Tamayo Cesar Department of Economics, Rutgers University, 75 Hamilton Street, 08901, New Brunswick, NJ, USA aut Investor protection and optimal contracts under risk aversion and costly state verification [Elektronische Daten] [Cesar Tamayo] We present a model of firm finance that encompasses imperfect investor protection, risk aversion and costly state verification. We characterize optimal contracts and study the conditions under which standard debt is optimal. Under suitable assumptions about the structure of the problem, standard debt contracts (SDCs) are optimal if and only if investor protection is sufficiently low. On the other hand, low investor protection results in higher funding costs and bankruptcy probabilities. In our setting, this implies that when SDCs are optimal, lowering investor protection reduces the entrepreneur's welfare. Numerical examples show that moderate changes in investor protection can have large effects on the terms of the contract and on the entrepreneur's welfare. Finally, we study the role of leverage and consider the welfare consequences of suboptimally implementing standard debt contracts. Springer-Verlag Berlin Heidelberg, 2014 Investor protection nationallicence Risk aversion nationallicence Financial contracts nationallicence Standard debt nationallicence Economic Theory Springer Berlin Heidelberg 59/3(2015-08-01), 547-577 0938-2259 59:3<547 2015 59 199 https://doi.org/10.1007/s00199-014-0856-5 text/html Onlinezugriff via DOI BK010053 XK010053 XK010000 Metadata rights reserved Springer special CC-BY-NC licence nationallicence 1 research-article jats NATIONALLICENCE NATIONALLICENCE NL-springer NATIONALLICENCE 856 40 https://doi.org/10.1007/s00199-014-0856-5 text/html Onlinezugriff via DOI NATIONALLICENCE 100 1- Tamayo Cesar Department of Economics, Rutgers University, 75 Hamilton Street, 08901, New Brunswick, NJ, USA aut NATIONALLICENCE 773 0- Economic Theory Springer Berlin Heidelberg 59/3(2015-08-01), 547-577 0938-2259 59:3<547 2015 59 199