Abstract

In the private benefits of control with the case, it has incentives for entrepreneurs; the same time, because of moral hazard, creditors can use to protect their control over the return, therefore, control of the creditors but also has the role acceptance. These two conflicting effects, debt financing will inevitably affect the arrangement of control. Debt financing, the best control of the arrangement depends on the control of the trade-off between the two roles, people generally believe that debt is not more control to the higher proportion of creditors. Control right has incentive effect on the entrepreneur so long he ensures his private benefits from that right, however, since the creditor may use control right to safeguard his returns in the case of moral hazard, it commits a encashment promise to the creditor as well. The conflicts between them may influence arrangement of control rights in debt financing. This paper holds that the best arrangement of control rights in debt financing depends on the tradeoff between its incentive and commitment effects, instead of the opinion that the more is the debt, the more control rights the creditor should get