Influence of Risk Incentive by Limited Dividend Provision

Moral hazard problem, which has been broadly studied in economics, financial engineering and other areas, is understood as one of inefficiency to distribute the resources. It is interpreted that after some contract was concluded, one person who has more information than the other may change his behaviour and attitude toward his investment planning, causing some trouble to the other person. In this paper, we study a risk incentive problem between a creditor and shareholders, whose right to make a claim is different from each other, for corporate profits. In particular, we refer to and discuss limited provision on dividend, which may play a role to be able to solve the incentive problem. Some numerical examples are examined to illustrate the problem mentioned.