The Impact of Corporate Governance Structures on the Agency Cost of Debt

Chan-Lau, Jorge A.

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The Impact of Corporate Governance Structures on the Agency Cost of Debt

IMF Working Paper No. 01/204

13 Pages Posted: 14 Feb 2006

See all articles by Jorge A. Chan-Lau

Jorge A. Chan-Lau

ASEAN+3 Macroeconomic Research (AMRO); National University of Singapore (NUS) - Risk Management Institute

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

Chan-Lau, Jorge Antonio, The Impact of Corporate Governance Structures on the Agency Cost of Debt (December 2001). IMF Working Paper No. 01/204, Available at SSRN: https://ssrn.com/abstract=880851