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Debt and Input Misallocation
Author(s) -
KIM MOSHE,
MAKSIMOVIC VOJISLAV
Publication year - 1990
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.1540-6261.1990.tb05106.x
Subject(s) - debt , agency cost , agency (philosophy) , incentive , monetary economics , economics , class (philosophy) , business , finance , microeconomics , computer science , corporate governance , philosophy , epistemology , shareholder , artificial intelligence
We investigate a class of agency costs of debt that arise because debt financing affects the firm's incentives to use inputs efficiently. A methodology for estimating this class of costs is presented and applied to a major industry, air transport. Our results are consistent with agency models that predict a decrease in efficiency as the debt increases. A part of the loss of efficiency that we identify is attributable to the greater use by levered firms of inputs that can be monitored and are collateralizable.