Excessive continuation and Dynamic Agency Costs of Debt

Antoine Faure-Grimaud and Décamps, Jean Paul
Authors registered in the RePEc Author Service: Jean-Paul Décamps

No 2504, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses the incentives of the equityholders of a leveraged company to shut it down in a continuous time, stochastic environment. Keeping the firm as an ongoing concern has an option value but equity and debt holders value it differently. Equity holders' decisions exhibit excessive continuation and reduce the firm's value. Using a compound exchange option approach, we characterize the resulting agency costs of debt, derive the ?price? of these costs and analyse their dynamics. We also show how agency costs can be reduced by the design of debt and the possibility of renegotiation.

Keywords: Debt; Dynamic agency costs; Excessive continuation (search for similar items in EconPapers)
JEL-codes: G13 G30 L10 (search for similar items in EconPapers)
Date: 2000-07
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP2504 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Excessive continuation and dynamic agency costs of debt (2002)
Working Paper: Excessive Continuation and Dynamic Agency Costs of Debt (2000)
Working Paper: Excessive Continuation and Dynamic Agency Costs of Debt (2000)
Working Paper: Excessive Continuation and Dynamic Agency Costs of Debt (2000)
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:cpr:ceprdp:2504

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP2504

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().