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| Author: | Bo, H. Lensink, R. Sterken, E. |
| Title: | Uncertainty and financing costraints |
| Journal: | European Finance Review
2003 : VOL. 7:2, p. 297-321 |
| Index terms: | Corporate finance Asset valuation Shareholders Decision making Sales management |
| Language: | eng |
| Abstract: | The authors present a consinuous-time asset pricing model of the levered firm where shareholders select not only the timing but also the form of abondonment. Shareholder can walk out of the firm either by (i) defaulting on their debt obligations or (ii) selling their shares to alternative operators of the technologies, as in a corporation sale. The authors find that by ignoring corporation sales, existing defaultable bond pricing models have a tendency to exaggarate risk premia and underestimate the borrowing ability of firms. |
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