["Journal of Money, Credit and Banking, Volume 58, Issue 5, Page 1299-1326, August 2026. ", "\nAbstract\nWe propose a theory on information transparency of optimal financial contracts. Our model nests adverse selection and agency cost. There exists a unique perfect Bayesian equilibrium with novel features: First, three types of optimal contracts can arise endogenously, that is, equity, transparent debt, and opaque debt. The former two require firms to take on a costly verification technology while opaque debt does not. Second, the unique equilibrium is either pooling on opaque debt, or mixing with transparent and opaque financing. Third, firms with sufficiently high quality and intermediate levels of internal funds find it optimal to use a transparent contract."]