Subsidiary Debt, Capital Structure, and Internal Capital Markets

@article{Kolasinski2009SubsidiaryDC,
  title={Subsidiary Debt, Capital Structure, and Internal Capital Markets},
  author={A. Kolasinski},
  journal={Organizations & Markets eJournal},
  year={2009}
}
  • A. Kolasinski
  • Published 2009
  • Economics
  • Organizations & Markets eJournal
  • I study external debt issued by operating subsidiaries of diversified firms. Consistent with Kahn and Winton's [2004. Moral hazard and optimal subsidiary structure for financial institutions. Journal of Finance 59, 2537-2575] model, where subsidiary debt mitigates asset substitution, I find firms are more likely to use subsidiary debt when their divisions vary more in risk. Consistent with subsidiary debt mitigating the free cash flow problem, I find that subsidiaries are more likely to have… CONTINUE READING
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