Technology, debt and the exploitation of growth options

Moshe Kim, Vojislav Maksimovic

Research output: Contribution to journalArticlepeer-review


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 languageEnglish
Pages (from-to)1113-1131
Number of pages19
JournalJournal of Banking and Finance
Issue number6
StatePublished - 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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