Publication Type:
journal articles
Publication Year:
2019
Publication Bibliography:
Firm boundaries and financing with opportunistic stakeholder behaviour
Journal of Corporate Finance, 2019
Abstract: We explore the impact of strategic behaviour of equity holders, debt holders and an opportunistic supplier of a critical input on the firm's capital structure, organizational design, and its outsourcing decision. We show that the supplier can trigger strategic bankruptcy even when the firm is solvent. Equity holders respond to this either by eliminating the supplier and producing the input in-house or by reducing their exposure to debt by using equity-financing. Both responses introduce inefficiency since in-house production costs of the input are higher, and debt is cheaper than equity. We show that the equilibrium debt-equity ratio varies positively with cash-flow profitability and the supplier's input marginal cost, but negatively with the riskiness of the cash flow and the equity holders' in-house input production costs.
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Publication Reference Link:
https://www.sciencedirect.com/science/article/pii/S0929119917307290
Break down of publication data into fields
Publication Title:
Capital Structure and Firm Boundaries with Opportunistic Stakeholders
Author Name:
Elie Appelbaum
Co-Author Name(s):
Madhav Aney and Sanjay Banerji
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Journal of Corporate Finance
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