Technology, debt and the exploitation of growth options

Moshe Kim; Vojislav Maksimovic

doi:10.1016/0378-4266(90)90003-K

Technology, debt and the exploitation of growth options

Moshe Kim, Vojislav Maksimovic

Department of Economics

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

Abstract

This paper analyzes the effect of the firm's technology on the agency costs of debt. It is shown that for an important class of technologies agency costs are not a uniformly rising function of leverage. For these technologies relatively high leverage can be consistent with a small tax subsidy. The effect of technology on the exploitation of real options by a levered firm is examined. The analysis provides a framework for a direct test of the agency cost of debt hypothesis using cost data.

Original language	English
Pages (from-to)	1113-1131
Number of pages	19
Journal	Journal of Banking and Finance
Volume	14
Issue number	6
DOIs	https://doi.org/10.1016/0378-4266(90)90003-K
State	Published - Dec 1990

Bibliographical note

Funding Information:
*We are grateful to Richard Green, Robert Heinkel, Arie Melnik and Lemana Senbet for their comments. This research was supported by Grant no. 410-88-0783 from the Canadian Social Science and Research Council. We are responsible for any remaining errors.

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/0378-4266(90)90003-K

Cite this

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abstract = "This paper analyzes the effect of the firm's technology on the agency costs of debt. It is shown that for an important class of technologies agency costs are not a uniformly rising function of leverage. For these technologies relatively high leverage can be consistent with a small tax subsidy. The effect of technology on the exploitation of real options by a levered firm is examined. The analysis provides a framework for a direct test of the agency cost of debt hypothesis using cost data.",

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Technology, debt and the exploitation of growth options

Abstract

Bibliographical note

ASJC Scopus subject areas

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