The Impact of Corporate Governance Structures on the Agency Cost of Debt

Jorge Chan-Lau

No 2001/204, IMF Working Papers from International Monetary Fund

Abstract: This paper uses a stochastic continuous time model of the firm to study how different corporate governance structures affect the agency cost of debt. In the absence of asymmetric information, it shows that control of the firm by debtholders with a minority stake delays the exit decision and reduces the underinvestment problem. Such a governance structure may play an important role in diminishing conflicts between shareholders and debtholders.

Keywords: WP; cash flow; Corporate governance; agency cost of debt; exit decision; bankruptcy; equity firm; firm increase; firm state; minority shareholder; equity-financed firm; Stocks; Currencies; Debt financing; Inflation; East Asia (search for similar items in EconPapers)
Pages: 12
Date: 2001-12-01
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Citations: View citations in EconPapers (3)

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