The Impact of Corporate Governance Structures on the Agency Cost of Debt
13 Pages Posted: 14 Feb 2006
Date Written: December 2001
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: Corporate governance, agency cost of debt, exit decision, bankruptcy
JEL Classification: G3
Suggested Citation: Suggested Citation
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