À繫¿¬±¸ Á¦ ±Ç È£ (2009³â 5¿ù)
Asian Review of Financial Research, Vol., No..
pp.1885~1917
pp.1885~1917
On Target Debt Ratios
Unyong Pyo Unyong Pyo, Faculty of Business, Brock University, St. Catharines, Ontario L2S3A1, Canada.
Yong Jae Shin Department of Business Administration, Soong-Eui Women¡¯s College, Seoul, 100-751, South Korea
Howard E. Thompson Professor Emeritus, School of Business, University of Wisconsin-Madison, 97 University Avenue, Madison, Wisconsin,
We show how target debt ratios can improve the investment incentives in firms with risky debt outstanding and with asymmetric information. While profitable investments in a firm with risky debt and/or asymmetric information can reduce the value of existing equity, new debt offsets the value loss to old shareholders. Since financing a part of investments with new debt set by target debt ratios offsets wealth transfer effects, firms will not pass up valuable investment opportunities and will make the optimal investment decisions. For the effectiveness of target debt ratios, the new debt can be issued with shelf registration and can maintain the same priority as in the old debt.
Unyong Pyo
Yong Jae Shin
Howard E. Thompson
We show how target debt ratios can improve the investment incentives in firms with risky debt outstanding and with asymmetric information. While profitable investments in a firm with risky debt and/or asymmetric information can reduce the value of existing equity, new debt offsets the value loss to old shareholders. Since financing a part of investments with new debt set by target debt ratios offsets wealth transfer effects, firms will not pass up valuable investment opportunities and will make the optimal investment decisions. For the effectiveness of target debt ratios, the new debt can be issued with shelf registration and can maintain the same priority as in the old debt.
target debt ratio,agency cost,underinvestment
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