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Debt and Input Misallocation

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  • Kim, Moshe
  • Maksimovic, Vojislav

Abstract

The authors investigate a class of agency costs of debt that arise because debt financing affects the firm's incentives to use inputs efficiently. A methodology for estimating this class of costs is presented and applied to a major industry--air transport. The authors' results are consistent with agency models that predict a decrease in efficiency as the debt increases. A part of the loss of efficiency that they identify is attributable to the greater use by levered firms of inputs that can be monitored and are collateralizable. Copyright 1990 by American Finance Association.

Suggested Citation

  • Kim, Moshe & Maksimovic, Vojislav, 1990. " Debt and Input Misallocation," Journal of Finance, American Finance Association, vol. 45(3), pages 795-816, July.
  • Handle: RePEc:bla:jfinan:v:45:y:1990:i:3:p:795-816
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    Cited by:

    1. Kovenock, Dan & Phillips, Gordon M, 1997. "Capital Structure and Product Market Behavior: An Examination of Plant Exit and Investment Decisions," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 767-803.
    2. Tian, Gloria Y. & Twite, Garry, 2011. "Corporate governance, external market discipline and firm productivity," Journal of Corporate Finance, Elsevier, vol. 17(3), pages 403-417, June.
    3. Russell, Levi A. & Briggeman, Brian C. & Featherstone, Allen M., 2013. "Debt and Input Misallocation in Farm Supply and Marketing Cooperatives: A DEA Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150445, Agricultural and Applied Economics Association.
    4. Padilla, A. Jorge & Requejo, Alejandro, 1999. "Conflicts of interest, employment decisions, and debt restructuring: evidence from Spanish firms in financial distress," DEE - Working Papers. Business Economics. WB 6432, Universidad Carlos III de Madrid. Departamento de Economía de la Empresa.
    5. A. Jorge Padilla & Alejandro Requejo, "undated". "Conflicts of Interest, Employment Decisions, and Bank Debt Restructuring: Evidence from Spanish Firms in Financial Distress," Studies on the Spanish Economy 59, FEDEA.
    6. Berger, Allen N. & Bonaccorsi di Patti, Emilia, 2006. "Capital structure and firm performance: A new approach to testing agency theory and an application to the banking industry," Journal of Banking & Finance, Elsevier, vol. 30(4), pages 1065-1102, April.
    7. Lambert, David K. & Bayda, Volodymyr V., 2005. "The Impacts of Farm Financial Structure on Production Efficiency," Journal of Agricultural and Applied Economics, Cambridge University Press, vol. 37(01), pages 277-289, April.
    8. Pushner, George M., 1995. "Equity ownership structure, leverage, and productivity: Empirical evidence from Japan," Pacific-Basin Finance Journal, Elsevier, vol. 3(2-3), pages 241-255, July.
    9. Darius Palia & S. Ravid & Chia-Jane Wang, 2008. "Founders versus non-founders in large companies: financial incentives and the call for regulation," Journal of Regulatory Economics, Springer, vol. 33(1), pages 55-86, February.
    10. Park, Timothy A. & Weliwita, Ananda, 1996. "Competitive Behavior In The Food Retailing Industry," Faculty Series 16680, University of Georgia, Department of Agricultural and Applied Economics.
    11. Martikainen, Minna & Nikkinen, Jussi & Vähämaa, Sami, 2009. "Production functions and productivity of family firms: Evidence from the S&P 500," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(2), pages 295-307, May.
    12. Hailu, Getu & Jeffrey, Scott R. & Goddard, Ellen W. & Ng, Desmond W., 2005. "Regulatory Environment, Cooperative Structure, and Agency Costs for Cooperative Agribusiness Firms in Canada: Comparative Case Studies," Journal of Food Distribution Research, Food Distribution Research Society, vol. 36(02), July.
    13. Matthew J. Clayton & S. Abraham Ravid, 1999. "The Effect of Leverage on Bidding Behavior: Theory and Evidence from the FCC Auctions," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-055, New York University, Leonard N. Stern School of Business-.
    14. Palia, Darius & Lichtenberg, Frank, 1999. "Managerial ownership and firm performance: A re-examination using productivity measurement," Journal of Corporate Finance, Elsevier, vol. 5(4), pages 323-339, December.

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