Osano Hiroshi

• Professor at Konan University

We explore equilibrium allocation and efficiency when private firms are listed by merging with a Special Purpose Acquisition Company (SPAC), compared with when they are listed through a traditional initial public offering (IPO). We show that a traditional IPO is more informationally efficient than a SPAC, except if the traditional IPO process is si...

We explore an equilibrium allocation and efficiency when private firms are listed by merging with a SPAC, compared with those when they are listed through a traditional IPO. We show that a traditional IPO is more informationally efficient than a SPAC, except if the traditional IPO process is sufficiently long and costly. We also indicate that the p...

In this paper, I theoretically explore the effects of the interaction between the information transmission role and the empty creditor problem of credit default swaps (CDSs) under debt rollover. Contrary to the empty creditor argument, the introduction of CDS protection increases the possibility of out-of-court restructuring if the liquidation valu...

We explore how the timings of compensation payments and contract terminations are jointly determined in a continuous-time principal--agent model under the discretionary termination policy of investors (the principal) when the manager (agent) has loss--averse preferences. Our theoretical findings provide several new empirical implications for backlo...

Given that an owner lacks the ability to commit to his or her timing decisions under a manager's hidden action, we consider the optimal design of the contract and the owner's optimal timing decisions. Using a real options approach, we show that, compared with the full commitment case, a higher (lower)-quality project is launched later than (at the...

This paper considers what kind of managerial compensation contract is optimal for mitigating the moral hazard decision regarding investment timing. We examine the situation where the personal objectives of managers do not align with those of shareholders and where there is the possibility of project liquidation but where managerial compensation is...

We explore a continuous-time agency model with double moral hazard. Using a venture capitalist (VC)–entrepreneur relationship where the VC both supplies costly effort and chooses the optimal timing of the initial public offering (IPO), we show that optimal IPO timing is earlier under double moral hazard than under single moral hazard. Our results a...

A continuous-time agency model is explored where the agent has loss-aversion preferences. Regardless of whether the reference point is formulated exogenously or endogenously, we show that the optimal contract includes a part that is less sensitive to the agent's continuation payoff; however, this part is preceded and followed by a range of option-t...

Given an owner's noncommitment timing strategy and a manager's hidden action, we consider how the corresponding timing decisions to launch a project and to replace the manager and change a project are determined and how the optimal compensation contract for the manager is designed. Using a real options approach, we show that, compared with the case...

We consider the role of the nonrecourse financing of securitization by a financial institution (FI). Our model suggests that even though the FI has the opportunity to provide liquidity support afterward, it is optimal for the FI to use the nonrecourse financing of securitization initially, because the nonrecourse security makes liquidation of the o...

This paper considers how managers choose the timing of investment in risky but value-increasing projects with a liquidation possibility for their firm when their personal objectives are not aligned with those of shareholders but their compensation is endogenously determined. Using a real options approach for a broad class of managerial preferences,...

We examine an incentive transfer scheme in an executive agency system when there are both marketable and nonmarketable public services. We show that because of the incentive transfer scheme, which contributes to the elimination of a government's budget deficit, social welfare is higher in the executive agency system than in a traditional system whe...

We develop a main bank model where the main bank decides whether or not to raise additional funds from the capital market to continue to invest in a borrowing firm when nonmain banks withdraw funds. We show that the threat of withdrawal of nonmain banks is more likely to force the main bank to perform efficiently in handling troubled loans, thereby...

We explore the timing of the replacement of a manager as an important incentive mechanism, using a real options approach in a situation where the timing of the decision to replace the manager is related to a major change in a firm's strategies that involves spending large amounts of various sunk adjustment costs. Using a continuous-time agency sett...

This paper considers the role of equity transfer to strategic alliance partners in mitigating the moral-hazard problem that occurs if a participating firm faces some possibility of reallocating a part of the resources devoted to the joint project of the strategic alliance or retreating from the strategic alliance before completing the joint project...

In this paper, I explore how the acquisition mode and capital structure of the acquiring firm are determined when there is asymmetric information about the type of manager of the acquiring firm. Under nonbootstrap acquisition, an increase in the leverage ratio reduces the capital cost by mitigating the asymmetric information problem between the man...

We explore the timing of the replacement of a manager as an important incentive mechanism, using a real options approach in a situation where the timing of the decision to replace the manager is related to a major change in a firm's strategies that involves spending large amounts of various sunk adjustment costs. In particular, we study this proble...

This paper provides a formal model in which incumbent managers and workers sign a labour contract in the face of takeover pressures. We consider the possibilities: (i) workers can enhance their productivity by making an investment in specific human capital; (ii) a raider and workers will renegotiate the original contract after a takeover; and (iii)...

This article examines the effect of securitization on the ex ante monitoring and ex post liquidation decisions of the issuer in the context of adverse selection. It characterizes those decisions as explicit functions of observable parameters that are related to securitization. If liquidity requirements lead the issuer to use senior/subordinated sec...

This paper explores the interaction between the internal corporate control mechanism of acquiring firms - managerial ownership and board dismissal of managers - and the incidence of efficient takeovers under asymmetric information about the type of manager of the acquiring firms. The internal control mechanism of acquiring firms needs to be designe...

We examine renegotiation in a double moral hazard model with an ex ante budget balancing constraint when both the principal and the agent are allowed to make a renegotiation offer even though the principal proposes an initial contract. Under a belief restriction, any perfect-Bayesian equilibrium leads to an allocation that is superior to the second...

I consider whether the injection of cash funds into a bank through the purchase of securities together with a bank closure policy can be designed as a strong incentive instrument for preventing the bank from taking moral hazard action in the presence of deposit insurance. Under certain conditions, the regulator's optimal policy can be to inject new...

This paper considers the role of stock-based compensation, such as restricted stock grants and stock options, in mitigating the moral hazard problem in teams in which agents who face the possibility of turnover must choose a level of effort or investment within working relationships with the other agents. We formally derive results in which stock-b...

This paper considers whether the first-best level of firm-specific human capital investment is attained by the use of stock option plans for workers and stock offers in acquisitions even though workers are threatened with the possibility of a divestiture and acquisition. We show that the first-best level of investment is achieved by a stock option...

We consider how the second-best allocation corresponding to an optimal rule under the policy commitment of a central bank and a fiscal authority with a consolidated government budget constraint can be achieved, even though these authorities are unable to commit themselves to their optimal policies and ignore the strategic interaction between their...

This paper considers the information content of stock reports when an investment bank offers her affiliated analyst a compensation contract that may induce him to misrepresent his stock report under uncertainty in investment banking opportunities. Our results suggest that the information content of the analyst's stock report strongly depends on whe...

This paper considers how a Chief Executive Officer (CEO) designs a bargaining process for the determination of his or her own compensation by selecting the level of independence of board members in order to influence the compensation determination process within the board and the monitoring ability of the board. The formulation is consistent with t...

The purpose of this paper is to explore a dynamic interaction between wealth distribution and firm organization design using a model of growth in altruism in which a consideration of moral hazard on the part of agents with risk-averse preferences prevents complete insurance and generates inequality. I show (i) that there exists an ergodic invariant...

The purpose of this paper is to give the estimation framework for considering whether or not regulatory constraints imposed on the Japanese life insurance industry can explain the behavior of Japanese life insurance companies with respect to their asset investment and divi- dend policies.

This paper develops a model that considers the entrepreneur's moral hazard in the choice of project, the bank's moral hazard in the choice of bank loan contracting and refinancing, and the prudential regulation of the bank. The main findings are as follows: (i)Increasing capital requirements increases the probability of the safe project relative to...

This paper considers how firm-specific factors affected the financial relations between banks and firms in Japan during the period in which deregulation and reform of the financing decisions of firms were almost completed. This was also a period in which Japanese banks incurred large bad loans. Our empirical results suggest that: (i) main banks mak...

Under the incomplete contract framework, we consider an optimal regulatory policy for motivating bank equity owners and bank managers to restructure the bad loans of their banks in the presence of managerial compensation contracts with stock options. The regulatory policy studied in this paper is mainly concerned with the design of repayment schedu...

There are several judicial cases under the US environmental law, in which a lending bank is liable for cleaning up environmentally hazardous materials generated by its borrowing firm. Such a liability rule, so-called lender liability, is applied to a lending bank which has been actively involved in the management of the firm. We first show that the...

This paper considers whether or not the first-best level of firm-specific human capital investment is attained by the use of stock option plans for workers and the choice of the method of payment for acquisitions even though workers are threatened with the possibility of a divestiture and acquisition. We show that the first-best level of firm-speci...

Abs tract The purpose of this paper is to explore a theory of government governance choice that explains what makes the differences among three organizational systems; an executive agency system, a privatization, and a bureaucratic system. We mainly focus on the executive agency system. The results obtained in our paper are summarized as follows. F...

We discuss the optimality of the regulator injecting public funds into a bank in the presence of deposit insurance, and characterise an optimal injection policy to prevent the bank from taking moral hazard action. We show that under certain conditions, the regulator’s optimal policy is to inject new cash funds into the bank. Furthermore, if the reg...

The purpose of this paper is to explore a mechanism for supporting desired equilibrium actions in a one-principal, multi-agent model when the principal makes a renegotiation offer. We show that there exists a mechanism in which the principal's most preferred mixed strategy is always supported.

The purpose of this paper is to explore a mechanism for implementing the desired equilibrium actions in the one-principal, multi-agent model with renegotiation when each agent is allowed to make a renegotiation offer. With some belief restriction, we show that there exists a mechanism in which the second-best strategy is always implemented.

This paper explores whether the ?main bank system? in Japan can be explained by a self-enforcing mechanism that motivates delegated monitorin g creditors to be committed not to execute inefficient liquidation even though all agents are risk-neutral. Using a multiple bank model, we specify a standard debt contract equilibrium in which the delegated...

This paper considers a problem of security design in the presence of monitoring done by a large investor to discipline the management of a firm. Since the large investor enjoys only part of the benefits generated by her monitoring activities but incurs all the associated costs, the design and amount of security need to be structured so as to motiva...

The purpose of this paper is to consider what determines the differences between the combinations of financial and labor systems observed in some large market economies. In the presence of complementarity relations between financial and labor systems, we first show that the American type of financial and labor systems and the Japanese type of finan...

The purpose of this paper is to specify a formal model that rationalizes the intercorporate shareholdings observed in the Japanese equity market as a mechanism for mutual commitment and risk sharing that creates greater possibilities to resolve managerial myopic problems caused by the threat of external takeovers. We show that, under certain condit...

The purpose of this paper is to explore whether the standard results of classical general equilibrium theory still hold in private information economies where the possibility of renegotiation of initial contracts (lotteries) is allowed. We establish that competitive equilibria with contracts (lotteries) exist and are optimal for the class of privat...

In his theoretical and survey papers, Aoki (1989, 1990) has examined the nature of Japanese firms as a nexus of employment and financial contracts.1 He has suggested the ‘institutional complementarity’ for Japanese firms by which the combination of life-time employment contracts (with deferred compensation plans) and ‘main’ bank relations (with cor...

This paper tests a real business cycle model with efficient long-term labor contracts (the efficient long-term contract model) against a standard real business cycle model (the intertemporal substitution model). In the former model, employment and real wages are determined by bilateral dynamic bargaining between firms and workers. In the latter mod...

This paper discusses the distortion of employment within a two-period, asymmetric information contracting model in which an exogenous demand shock is serially correlated and is known only to firms. The obtained results show that serial correlations of the state of nature can cause not only underemployment but also overemployment even when overemplo...

This paper tests the implicit contract hypothesis using data in the Japanese labor market. The empirical results suggest that implicit contract relations in real terms are not rejected in the Japanese labor market. This finding gives evidence (i) that a certain degree of observed wage rigidity reflects the outcome of efficient risk-sharing arrangem...

This paper investigate whether or not implicit contract relations predominate in the Japanese bank loan market and produce equilibrium credit rationing. The empirical evidence suggests that risks are shared between banks and firms through interest rate arrangements. This implies that commercial banks in Japan operate in a market dominated by implic...