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| Author: | Ebrahim, S. Mathur, I. |
| Title: | Optimal entrepreneurial financial contracting |
| Journal: | Journal of Business Finance and Accounting
2000 : NOV/DEC, VOL. 27:9&10, p. 1349-1374 |
| Index terms: | CAPITAL STRUCTURE OF COMPANIES COSTS RISK AVERSION |
| Language: | eng |
| Abstract: | This paper studies the optimal financing (capital structure) of entrepreneurial activity in the context of risk-aversion by incorporating the deadweight costs of bankruptcy and taxes. Unlike the extreme debt ration (corner solution) predicted by scholars using linear models, this paper provides unique interior results for risk-free as well as risky debt, irrespective of corporate taxes. The paper also shows the necessary and sufficient conditions for both forms of debt, and the pareto- optimality of one over the other. |
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