Debt Overhang, Costly Expandability and Reversibility, and Optimal Financial Structure
This article compares the investment and financing decisions of a firm that adopts a 'first-best' strategy with those of a firm that adopts a 'second-best' strategy. The former issues bonds upon deciding an initial capacity, while the latter issues bonds, and only then decides an initial capacity. The former is thus able to avoid the agency cost associated with the 'debt overhang' problem. Accordingly, the former will both issue more bonds and install a larger initial capacity than the latter. However, the agency cost of debt, i.e., firm value difference between these two strategies, is modest for plausible parameter values. Copyright Blackwell Publishing Ltd, 2004.
If 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.
Volume (Year): 31 (2004-09)
Issue (Month): 7-8 ()
|Contact details of provider:|| Web page: http://www.blackwellpublishing.com/journal.asp?ref=0306-686X |
|Order Information:||Web: http://www.blackwellpublishing.com/subs.asp?ref=0306-686X|
When requesting a correction, please mention this item's handle: RePEc:bla:jbfnac:v:31:y:2004-09:i:7-8:p:1191-1222. See general information about how to correct material in RePEc.
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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.