A RATIONALE FOR DEBT MATURITY STRUCTURE AND CALL PROVISIONS in the AGENCY THEORETIC FRAMEWORK

AMIR BARNEA; ROBERT A. HAUGEN; LEMMA W. SENBET

doi:10.1111/j.1540-6261.1980.tb02205.x

A RATIONALE FOR DEBT MATURITY STRUCTURE AND CALL PROVISIONS in the AGENCY THEORETIC FRAMEWORK

AMIR BARNEA^*, ROBERT A. HAUGEN, LEMMA W. SENBET

^*Corresponding author for this work

Coller School of Management

Research output: Contribution to journal › Article › peer-review

342 Scopus citations

Abstract

The agency costs of debt are introduced in this paper to explain the existence of complex financial instruments. Two areas of complexities are discussed in detail: the call provision and the maturity structure of debt. Their existence is rationalized as a means of resolving agency problems associated with informational asymmetry, managerial (stockholder) risk incentives, and foregone growth opportunities. It is also demonstrated that both features of corporate debt serve identical purposes in solving agency problems. Complex financial instruments are required because markets fail to provide complete and costless solutions to the agency problems discussed in the paper. 1980 The American Finance Association

Original language	English
Pages (from-to)	1223-1234
Number of pages	12
Journal	Journal of Finance
Volume	35
Issue number	5
DOIs	https://doi.org/10.1111/j.1540-6261.1980.tb02205.x
State	Published - Dec 1980

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A RATIONALE FOR DEBT MATURITY STRUCTURE AND CALL PROVISIONS in the AGENCY THEORETIC FRAMEWORK

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