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Arya kumar srustidhar Chand and Amit R k
''Capital rationing under perfect information''
( 2015, Vol. 35 No.2 )
In this paper, we discuss a scenario in capital structure where two divisional managers compete for capital from a firm for their projects in a perfect information setting. We consider verifiable profits and study take-it-or-leave-it contracts where the managers ask for capital from the firm privately or sequentially in public and offer a part of the profit to the firm. Under capital constraint, we demonstrate that in private meeting, there is no sub game perfect Nash equilibrium (SPNE) in pure strategies; but in sequential public meeting, SPNE exists in pure strategies and, for the firm it is better to operate under capital constraint to increase the competition among managers.
Keywords: Financial contracts, capital rationing, perfect information
L2 - Firm Objectives, Organization, and Behavior: General
Manuscript Received : Mar 03 2015 Manuscript Accepted : Apr 09 2015

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