Financial Slack Policy and the Laws of Secured Transactions
A manager's discretion depends on the firm's internal funds and its capacity to issue low-risk debt (together "financial slack"). The optimal amount of financial slack is a challenging problem in corporate finance. Too much slack encourages managerial misbehavior and exacerbates corporate agency problems. Too little slack prevents the firm from exploiting profitable investment opportunities. The various features of financial leverage including the amount of debt, maturity, covenants, default rights, and collateral may be used to regulate the degree of slack in a firm. This article demonstrates how the contours of priority rules and property rights associated with security interests in collateral and in proceeds contribute to optimal slack policy. The article contrasts the rule-based regime of U.C.C. Article 9 with the more flexible standards of the Bankruptcy Code. Copyright 2000 by the University of Chicago.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
When requesting a correction, please mention this item's handle: RePEc:ucp:jlstud:v:29:y:2000:i:1:p:35-69. 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: (Journals Division)
If references are entirely missing, you can add them using this form.