NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Andrew H. Roper

Duke University

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NBER Working Papers and Publications

September 2001The Effect of Capital Structure When Expected Agency Costs are Extreme
with Campbell R. Harvey, Karl V. Lins: w8452
We provide new evidence that debt creates shareholder value for firms that face agency costs. Our tests are unique in two respects. First, we focus on a sample of firms with potentially extreme agency problems. We study emerging market firms where the routine use of pyramid ownership structures provides an acute separation of management cash flow rights and control rights. Second, we argue that not all debt is the same. Using new data on global debt issuance, we find that the type of debt that positively impacts shareholder value is the type that closely monitors management. This combination of a sample of firms with extreme expected agency problems and detailed information on the different types of debt allows us to construct powerful tests of whether debt can mitigate the effects of agen...

Published: Harvey, Campbell R., Karl V. Lins and Andrew H. Roper. "The Effect Of Capital Structure When Expected Agency Costs Are Extreme," Journal of Financial Economics, 2004, v74(1,Oct), 3-30. citation courtesy of

 
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