Capital structure and earnings manipulation

A. Miglo

Research output: Contribution to journalArticlepeer-review

4 Citations (Scopus)


We consider an optimal contract between an entrepreneur and an investor, where the entrepreneur is subject to a double-moral hazard problem (one being the choice of production effort and the other being earnings manipulation). Since the entrepreneur cannot entirely capture the results of his effort, investment is below the optimal level and production effort is socially inefficient. The opportunity to manipulate earnings protects the entrepreneur against the risk of a low payoff when production is unsuccessful. Ex ante, this provides an incentive for the entrepreneur to increase investment and improve effort.
Original languageEnglish
Pages (from-to)367-382
Number of pages16
JournalJournal of Economics and Business
Issue number5
Publication statusPublished - 1 Jan 2010


  • Earnings manipulation
  • Intertemporal substitution
  • Design of securities
  • Property rights
  • Double-moral hazard

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