Specific Human Capital, Credible Commitment and Optimal Capital Structure
In this paper, we show that although ex ante equityholders would like to adopt an optimal displacement and operating policy, they may not have incentives to implement such a policy ex post when the manager acquires firmspecific human capital and becomes indispensable to the firm¡¯s continued operation. An optimal mix of debt and equity can serve as a commitment device in disciplining the manager.
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