Capital Structure as an Optimal Contract between Employees and Investors
AbstractThe ex ante optimal contract between investors and employees is derived endogenously and is interpreted in terms of debt, equity, and employees' compensation. Although public equity financing is feasible in this model through verified accounting income, debt is needed to force value-enhancing restructuring before the income realizes. The optimal debt level, however, is lower than that which maximizes the value of the firm when there is nonmonetary restructuring-related cost to employees. The paper explains how stock prices react to exchange offers, how earnings can be diluted by a decrease in leverage, and why employees' claims are generally senior to those of investors. New testable implications about leverage and compensation levels are derived. Copyright 1992 by American Finance Association.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by American Finance Association in its journal Journal of Finance.
Volume (Year): 47 (1992)
Issue (Month): 3 (July)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Gary Gorton & Frank Schmid, 2002.
"Class struggle inside the firm: a study of German codetermination,"
2000-025, Federal Reserve Bank of St. Louis.
- Gary Gorton & Frank Schmid, 2000. "Class Struggle Inside the Firm: A Study of German Codetermination," NBER Working Papers 7945, National Bureau of Economic Research, Inc.
- Gary Gorton & Frank Schmid, 2000. "Class Struggle Inside the Firm: A Study of German Codetermination," Center for Financial Institutions Working Papers 00-36, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Jonathan B. Berk & Richard Stanton & Josef Zechner, 2010.
"Human Capital, Bankruptcy, and Capital Structure,"
Journal of Finance,
American Finance Association, vol. 65(3), pages 891-926, 06.
- Graham, John R. & Harvey, Campbell R., 2001. "The theory and practice of corporate finance: evidence from the field," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 187-243, May.
- Langberg, Nisan, 2008. "Optimal financing for growth firms," Journal of Financial Intermediation, Elsevier, vol. 17(3), pages 379-406, July.
- Antonczyk, Ron Christian & Salzmann, Astrid Juliane, 2014. "Overconfidence and optimism: The effect of national culture on capital structure," Research in International Business and Finance, Elsevier, vol. 31(C), pages 132-151.
- Marco Becht & Patrick Bolton & Ailsa Röell, 2003.
"Corporate governance and control,"
ULB Institutional Repository
2013/13330, ULB -- Universite Libre de Bruxelles.
- Neumann, Rebecca M., 2006. "The effects of capital controls on international capital flows in the presence of asymmetric information," Journal of International Money and Finance, Elsevier, vol. 25(6), pages 1010-1027, October.
- Wolfgang Drobetz & Pascal Pensa & Claudia B. Wöhle, 2004. "Kapitalstrukturtheorie in Theorie und Praxis: Ergebnisse einer Fragebogenuntersuchung," Working papers 2004/09, Faculty of Business and Economics - University of Basel.
- Xiaozu Wang & Tian Zhu, 2004. "Specific Human Capital, Credible Commitment and Optimal Capital Structure," Annals of Economics and Finance, Society for AEF, vol. 5(1), pages 47-59, May.
- Rebecca Neumann, 2003. "International capital flows under asymmetric information and costly monitoring: implications of debt and equity financing," Canadian Journal of Economics, Canadian Economics Association, vol. 36(3), pages 674-700, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.