Capital Structure under Imperfect Enforcement

Hans Hvide and Tore Leite

No 4757, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Building on a costly state verification framework, we propose a theory of capital structure with imperfect enforcement. In addition to being consistent with stylized facts on the choice of capital structure, it accommodates a range of empirical regularities on the repayment behaviour, such as strategic defaults of debt obligations, costly bankruptcy, investor intervention, and violations of absolute priority rules.

Keywords: Cash diversion; Costly state verification; Outside equity; Financial contracts (search for similar items in EconPapers)
Date: 2004-11
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