Fragility under joint financing: The (moral) hazards of diversification

• 成果类型: Article
• 署名作者: Gottardi, Piero; Maurin, Vincent; Monnet, Cyril
• 署名单位: University of Essex; Universita Ca Foscari Venezia; Hautes Etudes Commerciales (HEC) Paris; University of Bern; Study Center Gerzensee
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2025.105990
• 发表日期: 2025
• 关键词: Fragility; moral hazard; Joint financing

摘要

We study the effect of investment growth on firms' incentives under moral hazard. Adding value- increasing, but risky projects to a firm's portfolio can weaken incentives for safer ones, even when returns are independent. While the firm diversifies its sources of income, this risk contamination channel can increase its fragility. Such fragility is exacerbated in the presence of news about the value of investments. Firms can mitigate these effects by selecting safer new investments at the expense of value creation. Our model thus predicts that large firms or merged firms may be riskier or less productive than smaller firms.