Abstract

http://ssrn.com/abstract=2024145
 
 

References (12)



 
 

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Asymmetric Information, Debt Capacity, and Capital Structure


Michael L. Lemmon


University of Utah - Department of Finance

Jaime F. Zender


University of Colorado at Boulder - Department of Finance

June 2, 2016


Abstract:     
We present a tradeoff theory of capital structure in which costs associated with asymmetric information are the sole friction. By considering both the amount of debt as well as the restrictiveness of the associated debt covenants a more complete characterization of debt structure is examined than is considered in the standard tax/bankruptcy cost tradeoff model. The leverage choice, the restrictiveness of the associated debt covenants, and the renegotiation of the covenants are examined and empirical implications are developed.

Number of Pages in PDF File: 63

Keywords: Asymmetric Information, Capital Structure, Debt Covenants

JEL Classification: D82, G32


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Date posted: March 20, 2012 ; Last revised: June 8, 2016

Suggested Citation

Lemmon, Michael L. and Zender, Jaime F., Asymmetric Information, Debt Capacity, and Capital Structure (June 2, 2016). Available at SSRN: http://ssrn.com/abstract=2024145 or http://dx.doi.org/10.2139/ssrn.2024145

Contact Information

Michael L. Lemmon
University of Utah - Department of Finance ( email )
David Eccles School of Business
Salt Lake City, UT 84112
United States
801-585-5210 (Phone)
801-581-7214 (Fax)
Jaime F. Zender (Contact Author)
University of Colorado at Boulder - Department of Finance ( email )
Boulder, CO 80309
United States
303-554-1665 (Phone)
303-492-4689 (Fax)
HOME PAGE: http://www-bus.colorado.edu/faculty/Zender/
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