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Managerial Entrenchment and the Choice of Debt Financing


  • Amadou N Sy


The paper analyzes the choice between public and private debt by an entrenched manager. The model shows that when the firm’s credit risk is low, management issues public bonds because of the value gains from increased flexibility rather than reduced restrictions and monitoring. In fact, management’s expected private gains decrease as initial private debt restrictions are selectively relaxed. In contrast, when credit risk is high, management issues private debt because of the value gains and private benefits from renegotiating more stringent restrictions. When the maturity of private debt is shortened, however, privately and publicly placed bonds can be preferred to bank debt.

Suggested Citation

  • Amadou N Sy, 1999. "Managerial Entrenchment and the Choice of Debt Financing," IMF Working Papers 99/94, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:99/94

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    References listed on IDEAS

    1. Rodrigo O. Valdes & Eduardo M Engel, 2000. "Optimal Fiscal Strategy for Oil Exporting Countries," IMF Working Papers 00/118, International Monetary Fund.
    2. International Monetary Fund, 2005. "Trinidad and tobago; The Energy Boom and Proposals for a Sustainable Fiscal Policy," IMF Working Papers 05/197, International Monetary Fund.
    3. Jan-Peter Olters & Daniel Leigh, 2006. "Natural-Resource Depletion, Habit Formation, and Sustainable Fiscal Policy; Lessons from Gabon," IMF Working Papers 06/193, International Monetary Fund.
    4. R. M. Solow, 1974. "Intergenerational Equity and Exhaustible Resources," Review of Economic Studies, Oxford University Press, vol. 41(5), pages 29-45.
    5. H. Takizawa & E. H. Gardner & Kenichi Ueda, 2004. "Are Developing Countries Better Off Spending Their Oil Wealth Upfront?," IMF Working Papers 04/141, International Monetary Fund.
    6. Luis Serven & César Calderon, 2004. "The Effects of Infrastructure Development on Growth and income," Econometric Society 2004 Latin American Meetings 173, Econometric Society.
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