New Financial Strategies Combat Managerial Greed for Better Corporate Investments
This paper explores how changing a company's debt structure can prevent managers from making selfish decisions that harm the company. By swapping equity for debt or using convertible debt, managers are more likely to choose projects that benefit the company. The key difference between the two methods is that an equity-for-debt swap can only happen before a manager makes an investment decision, while convertible debt can be changed even after the decision is made.