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A Theory of Capital Structure with Strategic Defaults and Priority Violations Author info | Abstract | Publisher info | Download info | Related research | Statistics Hans K. Hvide
Tore Leite
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We reformulate the classic CSV model of financial contracting from Townsend (1979) and Gale & Hellwig (1985) to tackle criticisms raised against it voiced by Hart (1995), such as lack of optimal behavior at the repayment stage and an inability to allow for outside equity. As a result, we obtain a theory of capital structure that accommodates empirical regularities such as bankruptcies, strategic defaults of debt obligations, and violations of absolute priority rules as parts of the equilibrium description.
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Paper provided by EconWPA in its series Finance with number
0311003.
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Length: 40 pages
Date of creation: 05 Nov 2003Date of revision:
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Keywords: Cash Diversion Costly State Verification Outside Equity Financial Contracts. Other versions of this item:
Find related papers by JEL classification: G - Financial Economics
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