Bankruptcy Risk Induced by Career Concerns of Regulators

2013/12/27 by G. Charles-Cadogan, Godfrey Charles-Cadogan, Charles-Cadogan, Godfrey +2
Business, Management and Accounting · Economics, Econometrics and Finance · #Banking stability, regulation, efficiency #Corporate Finance and Governance #FOS: Economics and business #Financial Markets and Investment Strategies #General Finance (q-fin.GN) #Risk Management (q-fin.RM) #q-fin.GN #q-fin.RM

paper · pdf · doi:10.48550/arxiv.1312.7346

arxiv created 2013/12/27 · openalex publication_date 2013/12/27 · arxiv updated 2013/12/31 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

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).

Citations

• Theory of the firm: Managerial behavior, agency costs and ownership structure

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