Fitting the Glass Slipper: Optimal Capital Structure in the Face of Liability

Abstract

The model presented in this paper juxtaposes two theories for why a rm might o er creditors a security interest to back up a loan. One theory holds that issuing secured debt allows the rm's owners to reduce expected payments in the event of bankruptcy to so-called \non-adjusting" creditors, who cannot or do not adjust the size of their claims in response… (More)

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11 Figures and Tables