Governance Impact on Credit Spread: Dynamic Contracting for Financial Securities
The article discusses how to make sure a person running a project puts in effort without being able to see the results. By using audits and penalties, the person can be encouraged to tell the truth. This helps keep the person motivated and ensures the project runs smoothly. The contract is based on financial securities and helps control costs. Good governance can lower the cost of borrowing money, while bad governance can make borrowing more expensive.