Bargaining Power Effects in Financial Contracting: A Joint Analysis of Contract Type and Placement Mode Choices (Lecture Notes in Economics and Mathematical Systems Book 577)

This work was accepted as a dissertation by the University of Muenster, Germany, in 2004. It was written while I was a teaching and research assistant at the Department of Banking. I own many debts - personal and intellectual - to Professor Dr. Andreas Pfingsten, my doctoral adviser, for his overall support while I was writing my dissertation. This thesis benefited much from his constructive criticism. I am also grateful that Professor Dr. Klaus Roder, Department of Finance, University of Regensburg, Germany, acted as my second advisor. Furthermore, I want to thank Dr. Alistair Milne, Sir John Cass Business School, City University, Great Britain, since he assisted me during a crucial phase of my dissertation project while I was staying as a visiting scholar at the Marie Curie Training Site in Corporate Finance, Capital Markets and Banking at Cass. This five month visit in London was financially supported by the European Commission (Fellowship Ref. No. HPMT-GH-01-00330-04). I am also indebted to my previous colleagues, mainly Dr. Hendrik Hakenes and Dr. Markus Ricke, for their encouragement and helpful discussions throughout my whole dissertation project. The dissertation also benefited from comments on a first working paper about the dissertation's topic by participants of research seminars at the Universities of Constance, Tuebingen and Osnabrueck, Germany, and at the 2003 Annual Meeting of the European Economic Association, Stockholm, Sweden. The primary objective of this book is to demonstrate that a firm's financing decisions depend among other things on bargaining power considerations, and to illustrate potential causes for this dependency. Based on a principal-agent analysis where a lender (principal) and a firm (agent) bargain over the financing of the firm’s risky project, the author illustrates and analyzes the importance of bargaining power on finance decisions. Introduction....Pages 1-7 A Review of Related Research....Pages 9-33 A Model to Analyze Bargaining Power Effects....Pages 35-108 Extending the model by an Ex-ante Informational Asymmetry About Contractual Partners’ Opportunities....Pages 109-248 Discussion of the Adopted Approach....Pages 249-256 Conclusion....Pages 257-263 Demonstrates that a firm's financing decision depends among other things on bargaining power considerations and illustrates potential reasons for this dependency. This work is based on a principal-agent analysis where a lender (principal) and a firm (agent) bargain how to finance the firm's risky project