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Financial Contracting Under Imperfect Enforcement

  • Tore Ellingsen
  • Eirik Gaard Kristiansen

We develop a model of financial contracting under imperfect enforcement. Financial contracts are designed to keep entrepreneurs from diverting project returns, but enforcement is probabilistic and penalties are limited. The model rationalizes the prevalence of straight debt and common stock, and its predictions are consistent with a host of empirical capital structure regularities. Copyright 2011, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/qje/qjq006
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Article provided by Oxford University Press in its journal The Quarterly Journal of Economics.

Volume (Year): 126 (2011)
Issue (Month): 1 ()
Pages: 323-371

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Handle: RePEc:oup:qjecon:v:126:y:2011:i:1:p:323-371
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