How the logic and pragmatics of sinking funds play a part in corporate governance

Rodolfo Apreda

No 351, CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA

Abstract: This paper sets forth that sinking funds foster corporate governance, either when they intend to build up the principal of bonds and financial hybrids to be repaid at maturity date, or to plan ahead the purchase of fixed assets in the future. To lay foundations, firstly we expand on the logic of sinking funds, by reviewing the standard model of capital formation. Proven drawbacks of this model, however, pave the way for our proposal of undertaking a portfolio management approach for which we furnish an iterative resetting program that deals with unavoidable imbalances of the underlying portfolio. Secondly, we develop the pragmatics of sinking funds, which focus on the choice problem attached to sinking funds and the fiduciary role expected from an appointed portfolio manager. Lastly, we move on to a protocol with suitable covenants to be embedded in a bond placement, so as to enhance the governance of those organizations that dare to avail themselves of sinking funds.

Keywords: sinking fund; corporate governance; bonds placement; financial hybrids; fixed assets; capital formation; portfolio management. (search for similar items in EconPapers)
JEL-codes: G30 G32 G38 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2007-07
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.ucema.edu.ar/publicaciones/download/documentos/351.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cem:doctra:351

Access Statistics for this paper

More papers in CEMA Working Papers: Serie Documentos de Trabajo. from Universidad del CEMA Contact information at EDIRC.
Bibliographic data for series maintained by Valeria Dowding ().