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CEO replacement and the capital structure of firms

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  • Pricila Maziero

    (University of Pennsylvania)

Abstract

his paper studies the optimal capital structure of firms in the presence of limited commitment and asymmetric information on the CEO's effort. Firms face endogenous borrowing constraints due to the presence of lack of commitment on debt repayment. Firms are also subject to imperfect information on the effort provided by the CEO. We analyze the optimal financing policy of the firm and find that the novel interaction of these two friction leads to important implications to financing dynamics. First, the even when the firms grow by accumulating capital, the borrowing constraints on debt still are present. Also, there is CEO turnover in equilibrium following periods of low productivity.

Suggested Citation

  • Pricila Maziero, 2016. "CEO replacement and the capital structure of firms," 2016 Meeting Papers 1259, Society for Economic Dynamics.
    • Handle: RePEc:red:sed016:1259
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