Premium
Incentive Conflicts, Bundling Claims, and the Interaction among Financial Claimants
Author(s) -
SPATT CHESTER S.,
STERBENZ FREDERIC P.
Publication year - 1993
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.1540-6261.1993.tb04725.x
Subject(s) - incentive , restructuring , equity (law) , agency (philosophy) , agency cost , business , finance , capital structure , capital (architecture) , value (mathematics) , principal–agent problem , microeconomics , economics , shareholder , corporate governance , debt , law , political science , history , philosophy , archaeology , epistemology , machine learning , computer science
We show that for certain capital structures equity has an incentive to buy out another claim and alter the firm's investment strategy so as to maximize the combined value of equity and the acquired claim. This restructuring may reintroduce agency problems into capital structures which appear to avoid agency conflicts. By bundling claims, it is possible to avoid this agency problem. The agency problem is also eliminated by dispersed ownership of the claims.