- 期刊
THE MULTI-PERIOD AGENCY PROBLEM AND RESULTING DISAPPEARANCE OF SINKING FUNDS
摘要
We develop a multi-period option model to show real world adverse incentive problems with debt where investment policy is not independent of capital structure. Firms with debts greater than their asset’s market value have a structural agency problem that influences their decision making process. These firms are in economic default and cannot survive without selling assets and shifting risk. As a result, the model shows sinking funds actually increase a firm's agency costs and lower equity value even though sinking funds lower the firm’s chances of defaulting on debt. This explains why sinking funds that were on almost all debentures prior to 1980 have disappeared from bond issues over the last 25 years.
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