Risk Management and Capital Structure: Information Costs and Agency Costs Effects
نویسنده
چکیده
This paper seeks to encompass elements of both the Modigliani and Miller (1958, 1963) and Jensen and Meckling (1976) approaches to optimal capital structure within a unified framework with shadow costs of incomplete information. Making the most of the major work of Merton (1987), Leland (1996, 1998) and Bellalah (2001a), we put forward a model that reflects the interaction of financing decisions and investment risk strategies under incomplete information. In this context, the study shows that (i) leverage level and yield spread increase when firm operates with hedging strategy, (ii) hedging provides more benefits compared to the complete information case, (iii) short term debt is more incentive-compatible with hedging than long term debt. Another implication of the model is that the importance of agency costs is far less than tax advantages of debt. JEL Classification: G32; G33; G35
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