DP4757 Capital Structure under Imperfect Enforcement
Author(s): | Hans K Hvide, Tore Leite |
Publication Date: | November 2004 |
Keyword(s): | cash diversion, costly state verification, financial contracts, outside equity |
JEL(s): | |
Programme Areas: | Financial Economics |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=4757 |
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 behaviour, such as strategic defaults of debt obligations, costly bankruptcy, investor intervention, and violations of absolute priority rules.