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

December 1, 2001

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Banking, Corporate governance, Currencies, Debt financing, Economic sectors, External debt, Financial institutions, Inflation, Money, Prices, Stocks

Keywords: agency cost of debt, bankruptcy, cash flow, Corporate governance, Currencies, Debt financing, East Asia, equity firm, equity-financed firm, exit decision, firm increase, firm state, Inflation, minority shareholder, Stocks, WP

Pages:
12
Volume:
2001
DOI:
https://doi.org/10.5089/9781451874501.001
Issue:
204
Series:
Working Paper No. 2001/204
Stock No:
WPIEA2042001
ISBN:
9781451874501
ISSN:
1018-5941

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