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THE AGENCY COST RATIONALE FOR REFUNDING DISCOUNTED BONDS
Author(s) -
Dhaliwal Dan S.
Publication year - 1985
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1985.tb00424.x
Subject(s) - agency (philosophy) , bond , agency cost , economics , business , public economics , finance , sociology , corporate governance , shareholder , social science
The purpose of this paper is to enhance the understanding of management's motivation for engaging in debt‐for‐debt exchange offers where new long‐term debt with a higher coupon rate is substituted for outstanding debt that is trading at a substantial discount. Some previously advanced arguments that imply a positive effect of such refunding of debt are examined, and their weaknesses are discussed. Then an alternative argument utilizing agency cost theory is advanced, and empirical results are presented to support this alternative argument.