Abstract

http://ssrn.com/abstract=1744140
 
 

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The Debt-Equity Distinction


Robert Flannigan


University of Saskatchewan

January 20, 2011

Banking and Finance Law Review, Vol. 26

Abstract:     
The distinction between debt and equity often is crucially important. Yet some doubt that there is a distinction of kind, or that the distinction is certain. My objective is to illuminate the conventional view of the difference – the imparity between fixed and contingent participation – and address the main challenges it has encountered. I first describe the common law and statutory developments that crystallized the distinction. I then review the entangled criticisms: that debt and equity are functionally equivalent or that the difference between them is fatally uncertain. Finally, I briefly consider the utility of the distinction in specific contexts.

Number of Pages in PDF File: 22

Keywords: Debt, Equity, Debt-Equity, Finance, Finance Theory, Capital Structure Irrelevance Principle, Trade-Off Theory, Pecking Order, Free Cash Flow, Option, Tax, Factors, Functional Equivalence, Profit-Sharing, Debt-Equity Ratio, Contingency, Viability Risk, Default Risk, Insolvency Risk, Preference Share

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Date posted: January 21, 2011 ; Last revised: August 26, 2011

Suggested Citation

Flannigan, Robert, The Debt-Equity Distinction (January 20, 2011). Banking and Finance Law Review, Vol. 26. Available at SSRN: http://ssrn.com/abstract=1744140

Contact Information

Robert Flannigan (Contact Author)
University of Saskatchewan ( email )
15 Campus Drive
Saskatoon, Saskatchewan S7N 5A6
Canada
306-966-5876 (Phone)
306-966-5900 (Fax)
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