Dynamic allocation of control rights between managers and investors affects policy of the dividend and value of enterprise. The paper studied the relevant factors that affect optimal debt ratio and allocation of control right. We suggest that the enterprise decrease the debt ratio with the increase of moral hazard, liquidity risk and investors’ absolute risk aversion. With the increase of shareholder’s control right, the relationship between shareholder’s control right and managers’ moral hazard is reversed from positive to negative. The implication of the paper is moderate debt ratio may achieve the tough constraint on the managers’ decision.

Dynamic allocation of control rights between managers and investors affects policy of the dividend and value of enterprise. The paper studied the relevant factors that affect optimal debt ratio and allocation of control right. We suggest that the enterprise decrease the debt ratio with the increase of moral hazard, liquidity risk and investors’ absolute risk aversion. With the increase of shareholder’s control right, the relationship between shareholder’s control right and managers’ moral hazard is reversed from positive to negative. The implication of the paper is moderate debt ratio may achieve the tough constraint on the managers’ decision.

Dynamic allocation of control rights between managers and investors affects policy of the dividend and value of enterprise. The paper studied the relevant factors that affect optimal debt ratio and allocation of control right. We suggest that the enterprise decrease the debt ratio with the increase of moral hazard, liquidity risk and investors' absolute risk aversion. With the increase of shareholder's control right, the relationship between shareholder's control right and managers' moral hazard is reversed from positive to negative. The implication of the paper is moderate debt ratio may achieve the tough constraint on the managers' decision.