Editing Principal–agent problem (section)

===Options framework===
{{See|Business valuation#Option pricing approaches|Corporate finance#Corporate governance}}
In certain cases agency problems may be analysed by applying the techniques developed for [[option (finance)|financial options]], as applied via a [[real options]] framework.<ref>[[Aswath Damodaran]]:  [http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/opt.html Applications Of Option Pricing Theory To Equity Valuation] {{Webarchive|url=https://web.archive.org/web/20120427075914/http://pages.stern.nyu.edu/~adamodar/New_Home_Page/lectures/opt.html |date=April 27, 2012 }} and [http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/optequity.pdf Option Pricing Applications in Valuation] {{Webarchive|url=https://web.archive.org/web/20120916122726/http://people.stern.nyu.edu/adamodar/pdfiles/eqnotes/optequity.pdf |date=September 16, 2012 }}.</ref><ref>D. Mauer and S. Sarkar (2001).  [http://www1.american.edu/academic.depts/ksb/finance_realestate/mrobe/Seminar/Mauer.pdf Real Options, Agency Conflicts, and Financial Policy] {{Webarchive|url=https://web.archive.org/web/20160304050513/http://www1.american.edu/academic.depts/ksb/finance_realestate/mrobe/Seminar/Mauer.pdf |date=March 4, 2016 }}; G. Siller-Pagaza, G. Otalora, E. Cobas-Flores (2006). [http://realoptions.org/papers2006/Siller-Pagaza_RO2.pdf The Impact of Real Options in Agency Problems] {{Webarchive|url=https://web.archive.org/web/20160602221722/http://realoptions.org/papers2006/Siller-Pagaza_RO2.pdf |date=June 2, 2016 }}</ref> [[Stockholders]] and [[bondholders]] have different objective—for instance, stockholders have an incentive to take riskier projects than bondholders do, and to pay more out in [[dividends]] than bondholders would like. At the same time, since equity may be seen as a [[call option]] on the value of the firm, an increase in the [[variance]] in the firm value, other things remaining equal, will lead to an increase in the value of equity, and stockholders may therefore take risky projects with negative net present values, which while making them better off, may make the bondholders worse off. Nagel and Purnanandam (2017) notice that since bank assets are risky debt claims, bank equity resembles a subordinated debt and therefore the stock's payoff is truncated by the difference between the face values of the corporation debt and of the bank deposits.<ref>[S. Nagel and A. Purnanandam (2017).  [https://www.dropbox.com/s/t6r9xvihh6lrntr/BankCreditRisk.pdf?dl=0 Bank Risk Dynamics and Distance to Default] {{Webarchive|url=https://web.archive.org/web/20230423162432/https://www.dropbox.com/s/t6r9xvihh6lrntr/BankCreditRisk.pdf?dl=0 |date=April 23, 2023 }};</ref> Based on this observation, Peleg-Lazar and Raviv (2017) show that in contrast to the classical agent theory of Michael C. Jensen and William Meckling, an increase in variance would not lead to an increase in the value of equity if the bank's debtor is solvent.<ref>[S. Peleg-Lazar and A. Raviv (2017). [http://onlinelibrary.wiley.com/doi/10.1111/eufm.12102/abstract Bank Risk Dynamics Where Assets are Risky Debt Claims] {{Webarchive|url=https://web.archive.org/web/20170805105545/http://onlinelibrary.wiley.com/doi/10.1111/eufm.12102/abstract |date=August 5, 2017 }};</ref>