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.
Diversified firms, agency costs of debt, coinsurance, internal capital markets, yield spreads
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.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11385/209879
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