Costly State Verification and Multiple Investors : The Role of Seniority

  title={Costly State Verification and Multiple Investors : The Role of Seniority},
  author={Andrew Winton},
Many f inancial c laims specify f ixed maximum payments , varying seniori ty , and absolute priori ty for more senior investors . These features are motivated in a model where a f irm’s manager contracts with several investors and f irm output can only be verif ied privately at a cost . Debtl ike contracts of varying seniori ty generally dominate symmetric contracts, and, when investors are risk neutral, it is optimal to use debtl ike contracts where more senior claims have absolute priority… CONTINUE READING
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