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Investment Decisions, Debt Renegotiation Friction, and Agency Conflicts
Author(s) -
Kim HwaSung
Publication year - 2020
Publication title -
international review of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.489
H-Index - 18
eISSN - 1468-2443
pISSN - 1369-412X
DOI - 10.1111/irfi.12208
Subject(s) - investment (military) , shareholder , debt , agency (philosophy) , monetary economics , bargaining power , economics , microeconomics , business , finance , corporate governance , philosophy , epistemology , politics , political science , law
This paper investigates how investment decisions are influenced by the possibility of debt renegotiation failure and shareholder–debtholder conflicts by extending the Sundaresan and Wang (2007) model. We find that the difference in investment thresholds due to agency conflicts decreases as shareholders’ bargaining power increases. We also show that as the probability of renegotiation friction is lower, the investment threshold is lower, which is consistent with the empirical result of Favara et al. (2017).