Specific Human Capital, Credible Commitment and Optimal Capital Structure

Xiaozu Wang () and Tian Zhu
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Xiaozu Wang: School of Management, Fudan University

Annals of Economics and Finance, 2004, vol. 5, issue 1, 47-59

Abstract: In this paper, we show that although ex ante equityholders would like to adopt an optimal displacement and operating policy, they may not have incentives to implement such a policy ex post when the manager acquires firmspecific human capital and becomes indispensable to the firm¡¯s continued operation. An optimal mix of debt and equity can serve as a commitment device in disciplining the manager.

Keywords: Capital structure; Bankruptcy; Specific human capital; Credible commitment; Managerial incentive (search for similar items in EconPapers)
JEL-codes: G32 G33 (search for similar items in EconPapers)
Date: 2004
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