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


  • SPIER, K.E.


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.
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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

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    References listed on IDEAS

    1. David G. Blanchflower & Andrew J. Oswald, 1995. "The Wage Curve," MIT Press Books, The MIT Press, edition 1, volume 1, number 026202375x, July.
    2. Borjas, George J, 1980. "Wage Determination in the Federal Government: The Role of Constituents and Bureaucrats," Journal of Political Economy, University of Chicago Press, vol. 88(6), pages 1110-1147, December.
    3. Richard B. Freeman, 1980. "Unionism and the Dispersion of Wages," ILR Review, Cornell University, ILR School, vol. 34(1), pages 3-23, October.
    4. Moulton, Brent R, 1990. "A Reexamination of the Federal-Private Wage Differential in the United States," Journal of Labor Economics, University of Chicago Press, vol. 8(2), pages 270-293, April.
    5. Preston, Anne E, 1989. "The Nonprofit Worker in a For-Profit World," Journal of Labor Economics, University of Chicago Press, vol. 7(4), pages 438-463, October.
    6. John Bound & George E. Johnson, 1989. "Changes in the Structure of Wages During the 1980's: An Evaluation of Alternative Explanations," NBER Working Papers 2983, National Bureau of Economic Research, Inc.
    7. Freeman, Richard B, 1977. "The Decline in the Economic Rewards to College Education," The Review of Economics and Statistics, MIT Press, vol. 59(1), pages 18-29, February.
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    debt ; investments ; shareholders ; models;


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