I use an accounting reform to assess the agency cost of debt in diversified firms. Those firms that switch from single to multiple segments following the reform suffer a 12% increase in their bond spread when compared to their stand-alone peers. Consistent with lenders anticipating under-investment and asset substitution incentives, diversified firms with high cash-flow volatility across divisions suffer the highest increase in borrowing costs. I employ a novel approach that allows abstracting from unobservable characteristics that would otherwise influence the pricing of diversified firms' debt.
Agency costs of Debt in Conglomerate Firms / Altieri, Michela. - In: JOURNAL OF FINANCIAL AND QUANTITATIVE ANALYSIS. - ISSN 0022-1090. - (In corso di stampa), pp. 1-55.
Agency costs of Debt in Conglomerate Firms
altieri michela
In corso di stampa
Abstract
I use an accounting reform to assess the agency cost of debt in diversified firms. Those firms that switch from single to multiple segments following the reform suffer a 12% increase in their bond spread when compared to their stand-alone peers. Consistent with lenders anticipating under-investment and asset substitution incentives, diversified firms with high cash-flow volatility across divisions suffer the highest increase in borrowing costs. I employ a novel approach that allows abstracting from unobservable characteristics that would otherwise influence the pricing of diversified firms' debt.File | Dimensione | Formato | |
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