Journal of Financial Stability Vol. 6 No. 2 2010
Debt, hedging and human capital
open access
Abstract
This paper provides a theory of debt and hedging based on human capital. We distinguish human capital from physical capital in two ways: (1) human capital is inalienable and can exercise a one-sided option to leave the firm and (2) human capital is not perfectly replaceable. We show that a firm may reach the first best solution while issuing debt or equity to outsiders provided that either the insiders receive a senior claim or that the firm hedges. We then show that given asymmetric information concerning costs the only viable solution has the firm issuing debt to outsiders and hedging.
- DOI
- 10.1016/j.jfs.2008.12.001
- Volume
- 6
- Issue
- 2
- Pages
- 55-63
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref