Journal of Financial and Quantitative Analysis Vol. 54 No. 1 2019
Asymmetric Information, Debt Capacity, and Capital Structure
Abstract
Capital structure choice based on costs associated with asymmetric information is examined in order to present a new perspective on the standard pecking order and trade-off theories. In the model, both the face value of debt and the restrictiveness of the associated debt covenants are chosen as part of the financial structure, allowing a more complete characterization of this decision. Debt structure choice balances ex ante adverse selection against ex post moral hazard, providing a natural integration of the pecking order and trade-off theories and the development of interesting empirical implications.
- DOI
- 10.1017/s0022109018000443
- Volume
- 54
- Issue
- 1
- Pages
- 31-59
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref