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Managers, Debt and Industry Equilibrium

Erlend Nier

FMG Discussion Papers from Financial Markets Group

Abstract: This paper reconsiders the strategic effect of debt under the assumption that quantity choices are made by managers whose objective is t avoid bankruptcy. The basic result is that quantity choices, which are strategic substitutes under profit maximization, may turn into strategic complements under reasonable assumptions on the profit function. The value a delegation, optimal wage contracts, and empirical implications are discussed.

Date: 1998-04
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