Debt and Input Misallocation
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.
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Volume (Year): 45 (1990)
Issue (Month): 3 (July)
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