Imperfect Competition, Agency, and Financing Decisions
Year: 2001
Type: article
Abstract: We examine in a Cournot duopoly model the well known view that short-term capital market debt can control managerial moral hazard. We show that short-term debt does not provide this discipline because of management's manipulation of the information flow to the market. Shareholders may nevertheless prefer short-term debt because it motivates management to be more aggressive in the product market. We contrast short-term and long-term capital market financing with bank credit that includes monitoring. The empirical implications link managerial agency, predation, and the choice of debt maturity and funding source.
Source: The Journal of Business
DOI: 10.1086/209674
Authors: George Kanatas, Jianping Qi
Language: English
Subfield: Accounting
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W3124616926