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Bankruptcy, Warranties And The Firm'S Capital Structure

  • APPELBAUM, E.

This paper examines the role of capital structure as an instrument for shifting risk between real and financial markets. The author considers a firm whose contractual agreements involve both consumers and debtholders and shows that if consumers are risk averse, whereas equity and debtholders are risk neutral, the firm uses its capital structure to shift risk away from consumers. The optimal allocation of risk across real and financial markets leads the firm to be fully equity financed. Copyright 1992 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

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Paper provided by York (Canada) - Department of Economics in its series Papers with number 89-09.

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Length: 20 pages
Date of creation: 1989
Date of revision:
Handle: RePEc:fth:yorkca:89-09
Contact details of provider: Postal: YORK UNIVERSITY, DEPARTMENT OF ECONOMICS, 4700 KEELE ST-NORTH YORK ONTARIO H3J 1P3 CANADA.
Phone: (416) 736-5083
Fax: (416) 736-5987
Web page: http://dept.econ.yorku.ca/

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  1. Elie Appelbaum, 2002. "Union Contracts and the Firm's Financial Structure," Working Papers 2002_12, York University, Department of Economics.
  2. Appelbaum, Elie, 1993. "Government policy and the firm's capital structure," European Economic Review, Elsevier, vol. 37(6), pages 1185-1196, August.
  3. Murthy, D. N. P. & Djamaludin, I., 2002. "New product warranty: A literature review," International Journal of Production Economics, Elsevier, vol. 79(3), pages 231-260, October.
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