Premium
A RATIONALE FOR DEBT MATURITY STRUCTURE AND CALL PROVISIONS IN THE AGENCY THEORETIC FRAMEWORK
Author(s) -
BARNEA AMIR,
HAUGEN ROBERT A.,
SENBET LEMMA W.
Publication year - 1980
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1980.tb02205.x
Subject(s) - agency (philosophy) , maturity (psychological) , agency cost , debt , shareholder , incentive , information asymmetry , principal–agent problem , business , finance , economics , accounting , financial economics , actuarial science , microeconomics , political science , corporate governance , sociology , law , social science
The agency costs of debt are introduced in this paper to explain the existence of complex financial instruments. Two areas of complexities are discussed in detail: the call provision and the maturity structure of debt. Their existence is rationalized as a means of resolving agency problems associated with informational asymmetry, managerial (stockholder) risk incentives, and foregone growth opportunities. It is also demonstrated that both features of corporate debt serve identical purposes in solving agency problems. Complex financial instruments are required because markets fail to provide complete and costless solutions to the agency problems discussed in the paper.