search query: @author Moore, J. / total: 21
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| Author: | Hart, O. Moore, J. |
| Title: | Debt and seniority: an analysis of the role of hard claims in constraining management |
| Journal: | American Economic Review
1995 : JUN, VOL. 85:3, p. 567-585 |
| Index terms: | DEBT MANAGEMENT INVESTMENT PLANNING INVESTMENT ANALYSIS |
| Language: | eng |
| Abstract: | We argue that long-term debt has a role in controlling management's ability to finance future investments. Companies with high (widely held) debt will find it hard to raise capital, since new security-holders will have low priority relative to existing creditors; conversely for companies with low debt. We show that there is an optimal debt - equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments. We derive conditions under which equity and single class of senior long-term debt work as well as more complex contracts for controlling investment behavior. |
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