Planning and Services White Papers
Managerial Entrenchment and the Choice of Debt Financing
Overview The paper analyzes the choice between public and private debt by an entrenched manager. The model shows that when the firm's credit is low, management issues pubic bonds because of the value of gains from increased flexibility rather than reduced restrictions and monitoring. Infact, management's expected private gains decrease as initial private debt restrictions are selectively relaxed. In contrast, when credit risk is high, management issues private debt because of the value gains and private benefits from renegotiating more stringent restrictions. When the maturity of the private debt is shortened, however, privately and publicly placed bonds can be prefered to the bank debt.
| Publisher | International Monetary Fund | File Format | PDF, requires Acrobat Rdr 5 |
|---|---|---|---|
| Date Published | July 1999 | Downloads | 17 |
| Format | White Papers | ||
| Topics | |||
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