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Measuring the Agency Cost of Debt

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Author Info
 Mello, Antonio S
Parsons, John E
Abstract

The authors adapt a contingent claims model of the firm to reflect the incentive effects of the capital structure and, thereby, to measure the agency costs of debt. An underlying model of the firm and the stochastic features of its product market are analyzed and an optimal operating policy is chosen. The authors identify the change in operating policy created by leverage and value this change. The model determines the value of the firm and its associated liabilities incorporating the agency consequences of debt. Copyright 1992 by American Finance Association.

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File URL: http://links.jstor.org/sici?sici=0022-1082%28199212%2947%3A5%3C1887%3AMTACOD%3E2.0.CO%3B2-S&origin=repec
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Article provided by American Finance Association in its journal Journal of Finance.

Volume (Year): 47 (1992)
Issue (Month): 5 (December)
Pages: 1887-904
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Handle: RePEc:bla:jfinan:v:47:y:1992:i:5:p:1887-904

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  1. Hong Liu & Jianjun Miao, 2006. "Managerial Preferences, Corporate Governance, and Financial Structure," Boston University - Department of Economics - Working Papers Series WP2006-020, Boston University - Department of Economics. [Downloadable!]
  2. Bart Lambrecht & Stewart C. Myers, 2005. "A Theory of Takeovers and Disinvestment," NBER Working Papers 11082, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Abel Elizalde, 2006. "Credit Risk Models Ii: Structural Models," Working Papers wp2006_0606, CEMFI. [Downloadable!]
  4. Hirth, Stefan & Uhrig-Homburg, Marliese, 2009. "Investment Timing, Liquidity, and Agency Costs of Debt," Finance Research Group Working Papers F-2009-04, University of Aarhus, Aarhus School of Business, Department of Business Studies. [Downloadable!]
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