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Capital Structure As A Bargaining Tool: The Role Of Leverage In Contract Renegociation

Author

Listed:
  • PEROTTI, E.C.
  • SPIER, K.E.

Abstract

This paper presents a strategic model of temporarily high leverage. When the repayment of senior claims depends in part upon further investment, shareholders may be able to alter credibly their incentives to invest through an exchange of junior debt for equity and thereby force concessions from senior creditors. The authors focus on the conflict between shareholders and risk-averse workers and show that this strategic use of debt leads to an inefficient allocation of risk. They characterize conditions under which firms will undergo leveraged recapitalizations, their choice of debt instruments, and the dynamics of their capital structure. Copyright 1993 by American Economic Association.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Perotti, E.C. & Spier, K.E., 1991. "Capital Structure As A Bargaining Tool: The Role Of Leverage In Contract Renegociation," Harvard Institute of Economic Research Working Papers 1548, Harvard - Institute of Economic Research.
  • Handle: RePEc:fth:harver:1548
    as

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