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Bankruptcy, Warranties And The Firm'S Capital Structure

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Author Info

  • APPELBAUM, E.

Abstract

This paper examines the role of capital structure as an instrument for shifting risk between real and financial markets. The author considers a firm whose contractual agreements involve both consumers and debtholders and shows that if consumers are risk averse, whereas equity and debtholders are risk neutral, the firm uses its capital structure to shift risk away from consumers. The optimal allocation of risk across real and financial markets leads the firm to be fully equity financed. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Bibliographic Info

Paper provided by York (Canada) - Department of Economics in its series Papers with number 89-09.

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Length: 20 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:fth:yorkca:89-09

Contact details of provider:
Postal: YORK UNIVERSITY, DEPARTMENT OF ECONOMICS, 4700 KEELE ST-NORTH YORK ONTARIO H3J 1P3 CANADA.
Phone: (416) 736-5083
Fax: (416) 736-5987
Web page: http://dept.econ.yorku.ca/
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Related research

Keywords: bankruptcy ; enterprises ; financial market;

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References

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  1. Appelbaum, Elie, 1993. "Government policy and the firm's capital structure," European Economic Review, Elsevier, vol. 37(6), pages 1185-1196, August.
  2. Elie Appelbaum, 2002. "Union Contracts and the Firm's Financial Structure," Working Papers 2002_12, York University, Department of Economics.
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Cited by:
  1. Stefan Arping & Gy�ngyi L�r�nth, 2006. "Corporate Leverage and Product Differentiation Strategy," The Journal of Business, University of Chicago Press, vol. 79(6), pages 3175-3208, November.
  2. Hauenschild, Nils & Stahlecker, Peter, 2004. "Loan financing, bankruptcy, and optimal supply," International Review of Economics & Finance, Elsevier, vol. 13(2), pages 115-140.
  3. Tsoulouhas, Theofanis, 1996. "Labor and credit contracts with asymmetric information and bankruptcy," European Economic Review, Elsevier, vol. 40(8), pages 1665-1682, November.
  4. Elie Appelbaum, 2002. "Union Contracts and the Firm's Financial Structure," Working Papers 2002_12, York University, Department of Economics.
  5. Elie Appelbaum, 2007. "Incomplete Contracts, Bankruptcy and the Firm’s Capital Structure," Working Papers 2007_06, York University, Department of Economics.

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