American Economic Review Vol. 76 No. 5 1986
Oligopoly and Financial Structure: The Limited Liability Effect
Abstract
We argue that product markets and financial markets have important linkages. Assuming on oligopoly in which financial and output decisions follow in sequence, we show that limited liability may commit a leveraged firm to a more aggressive output stance. Because firms will have incentives to use financial structure to influence the output market, this demonstrates a new determinant of the debt-equity ratio.
- Volume
- 76
- Issue
- 5
- Pages
- 956-970
- Sources
- bibtex:phds-export.bib