Capital Structure Under Imperfect Enforcement

48 Pages Posted: 8 Feb 2005

See all articles by Hans K. Hvide

Hans K. Hvide

University of Bergen - Department of Economics; University of Aberdeen - Business School; Centre for Economic Policy Research (CEPR); Institute for the Study of Labor (IZA)

Tore E. Leite

Norwegian School of Economics (NHH)

Date Written: November 2004

Abstract

Building on a costly state verification framework, we propose a theory of capital structure with imperfect enforcement. In addition to being consistent with stylized facts on the choice of capital structure, it accommodates a range of empirical regularities on the repayment behavior, such as strategic defaults of debt obligations, costly bankruptcy, investor intervention, and violations of absolute priority rules.

Keywords: Cash diversion, costly state verification, outside equity, financial contracts

JEL Classification: G12, G32, G33, M49

Suggested Citation

Hvide, Hans and Leite, Tore E., Capital Structure Under Imperfect Enforcement (November 2004). CEPR Discussion Paper No. 4757. Available at SSRN: https://ssrn.com/abstract=663405

Hans Hvide (Contact Author)

University of Bergen - Department of Economics ( email )

Fosswinckelsgt. 6
N-5007 Bergen, 5007
Norway

University of Aberdeen - Business School ( email )

Edward Wright Building
Dunbar Street
Aberdeen, Scotland AB24 3QY
United Kingdom

HOME PAGE: http://hans.hvide.googlepages.com/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Tore E. Leite

Norwegian School of Economics (NHH) ( email )

Helleveien 30
N-5045 Bergen
Norway
+47 5595 9343 (Phone)
+47 5595 9841 (Fax)

Register to save articles to
your library

Register

Paper statistics

Downloads
22
Abstract Views
1,211
PlumX Metrics