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How the logic and pragmatics of sinking funds play a part in corporate governance

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  • Rodolfo Apreda

Abstract

This paper sets forth that sinking funds foster corporate governance, either when they intend to build up the principal of bonds and financial hybrids to be repaid at maturity date, or to plan ahead the purchase of fixed assets in the future. To lay foundations, firstly we expand on the logic of sinking funds, by reviewing the standard model of capital formation. Proven drawbacks of this model, however, pave the way for our proposal of undertaking a portfolio management approach for which we furnish an iterative resetting program that deals with unavoidable imbalances of the underlying portfolio. Secondly, we develop the pragmatics of sinking funds, which focus on the choice problem attached to sinking funds and the fiduciary role expected from an appointed portfolio manager. Lastly, we move on to a protocol with suitable covenants to be embedded in a bond placement, so as to enhance the governance of those organizations that dare to avail themselves of sinking funds.

Suggested Citation

  • Rodolfo Apreda, 2007. "How the logic and pragmatics of sinking funds play a part in corporate governance," CEMA Working Papers: Serie Documentos de Trabajo. 351, Universidad del CEMA.
  • Handle: RePEc:cem:doctra:351
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    File URL: http://www.ucema.edu.ar/publicaciones/download/documentos/351.pdf
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    References listed on IDEAS

    as
    1. Rodolfo Apreda, 2007. "The rise of corporate governance brokers and how they trade in asymmetric information," CEMA Working Papers: Serie Documentos de Trabajo. 341, Universidad del CEMA.
    2. Rodolfo Apreda, 2003. "THE SEMANTICS OF GOVERNANCE. (The common thread running through corporate, public, and global governance.)," CEMA Working Papers: Serie Documentos de Trabajo. 245, Universidad del CEMA.
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    Cited by:

    1. Rodolfo Apreda, 2008. "Who is the ultimate master of contractual, regulatory, discretionary and residual cash flows? An answer from the standpoint of corporate governance," CEMA Working Papers: Serie Documentos de Trabajo. 368, Universidad del CEMA.

    More about this item

    Keywords

    sinking fund; corporate governance; bonds placement; financial hybrids; fixed assets; capital formation; portfolio management.;

    JEL classification:

    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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