Michael Fishman

DeMarzo, Peter and Michael J. Fishman. 2007. Optimal Long-Term Financial Contracting. Review of Financial Studies. 20(6): 2079-2128.

We develop an agency model of financial contracting. We derive long-term debt, a line of credit, and equity as optimal securities, capturing the debt coupon and maturity; the interest rate and limits on the credit line; inside versus outside equity; dividend policy; and capital structure dynamics. The optimal debt-equity ratio is history dependent, but debt and credit line terms are independent of the amount financed and, in some cases, the severity of the agency problem. In our model, the agent can divert cash flows; we also consider settings in which the agent undertakes hidden effort, or can control cash flow risk.

Fishman, Michael J. and Kathleen Hagerty. 2003. Mandatory vs. Voluntary Disclosure in Markets with Informed and Uninformed Customers. Journal of Law, Economics, & Organization. 19(1): 45-63.

Numerous rules mandate the disclosure of information. This article analyzes why such rules are enacted. Specifically, (i) why wouldn't firms voluntarily disclose their private information; and (ii) given that voluntary disclosure would not be forthcoming, who has the incentive to lobby for mandatory disclosure rules? Previous analyses of disclosure assume that all customers understand the disclosures that can be made. A key result in these analyses is that there is no role for mandatory disclosure. Either voluntary disclosure is forthcoming or if it is not, no one is better off with mandatory disclosure. We analyze a market in which not all customers understand the disclosures that can be made. We show that if the fraction of customers who would understand a firm's disclosure is too low, then voluntary disclosure may not be forthcoming. In this case, mandatory disclosure benefits some (possibly all) customers and may also benefit firms. Thus we identify a motive for someone to lobby for such rules. Our results suggest that we should find mandatory disclosure rules with regard to information that is relatively difficult to understand.

DeMarzo, Peter and Michael J. Fishman. 2007. Optimal Long-Term Financial Contracting. Review of Financial Studies. 20(6): 2079-2128.

We develop an agency model of financial contracting. We derive long-term debt, a line of credit, and equity as optimal securities, capturing the debt coupon and maturity; the interest rate and limits on the credit line; inside versus outside equity; dividend policy; and capital structure dynamics. The optimal debt-equity ratio is history dependent, but debt and credit line terms are independent of the amount financed and, in some cases, the severity of the agency problem. In our model, the agent can divert cash flows; we also consider settings in which the agent undertakes hidden effort, or can control cash flow risk.

Fishman, Michael J. and Kathleen Hagerty. 2003. Mandatory vs. Voluntary Disclosure in Markets with Informed and Uninformed Customers. Journal of Law, Economics, & Organization. 19(1): 45-63.

Numerous rules mandate the disclosure of information. This article analyzes why such rules are enacted. Specifically, (i) why wouldn't firms voluntarily disclose their private information; and (ii) given that voluntary disclosure would not be forthcoming, who has the incentive to lobby for mandatory disclosure rules? Previous analyses of disclosure assume that all customers understand the disclosures that can be made. A key result in these analyses is that there is no role for mandatory disclosure. Either voluntary disclosure is forthcoming or if it is not, no one is better off with mandatory disclosure. We analyze a market in which not all customers understand the disclosures that can be made. We show that if the fraction of customers who would understand a firm's disclosure is too low, then voluntary disclosure may not be forthcoming. In this case, mandatory disclosure benefits some (possibly all) customers and may also benefit firms. Thus we identify a motive for someone to lobby for such rules. Our results suggest that we should find mandatory disclosure rules with regard to information that is relatively difficult to understand.